Jobs Report good (bad) news

We have now seen the last Jobs Report before Election Day.  Its impact on the election – good or bad – is diminished by the fact that more than 30 million folks have already voted under the far too early early voting laws.

As an overview, the report shows that the U.S. economy is still growing (still recovering from the Covid shutdown) — although at a slower rate.  The 261,000 new jobs represent a modest gain.  Wage growth is slowing down – falling further behind inflation.  In the last year, workers have lost approximately eight percent or the equivalent of one month of their annual salaries.  The unemployment rate inched up by two-tenths of a percent to 3.7 percent.

It is the first sign that the Federal Reserve’s unprecedented series of interest rate increases may be starting to have an impact – slowing the economy down.  It may still be a policy of too late, but there can be no doubt that the Fed is now serious about tamping down the inflationary pressures caused by too much money chasing too few goods and services.

Decreasing inflationary pressures can be viewed as good news.  It is a cure, however, with rather bad side effects for the American people.  The Fed will have to keep increasing those interest rates until there is a significant increase in unemployment and a reduction in the ability of folks back home to continue spending so much money.  That means taking money – your money — out of the economy by diminishing the ability of the public to spend.

And that is one of the problems.  So much money has been – and is being – pushed into the economy that Americans have demonstrated an ability to continue spending despite all those past rate increases.

The Fed’s policy will not work until the interest rates and the unemployment levels prevent – in real terms – the ability of the public to spend.  As long as there is sufficient disposable income, the public will be disposing of it at a rapid rate.  One reason is that the anticipation of inflationary higher prices in the future has folks buying more than necessary today.  (Example: This week, I spent approximately $45 on items I would not usually have purchased at this time solely because of anticipated price increases in the future.)

The good news is that the latest Jobs Report shows the Fed’s interest rate hikes are having an effect – albeit very modest. That means more interest rate increases in December – probably another 75 basis points.  This series of large interest rate hikes is due to the Fed being too slow to impose more modest increases much earlier.

The really bad news in all this is that if you studied the Jobs Report closely, you would discover that Fed Chairman Jerome Powell said that a recession is likely.  It could be mild – or not – but he sees it almost as an inevitability.

Interestingly, former Fed Chairman Janet Yellen – now Secretary of the Treasury — does not believe there will be a recession.  Is that because she is no longer the Fed chairman but rather an official in the Biden administration – which has been peddling a dubious “good news” economic gospel for political reasons?

The irony of the Fed policy of interest rate hikes is that they are resulting in even higher costs for consumers.  In a sense, the only tool the Fed has to fight inflation is causing inflationary-like cost increases.  It is also hurting the stock market and all those stock-based retirement plans.

And as the Fed is fighting inflation, the Biden administration is fueling it with unbridled spending.  As the Fed tries to reduce the number of dollars chasing limited supplies, Biden & Co. are pumping more and more money into the economy.  The writing off of billions of dollars in student debt is just the latest example of economic malpractice.

The administration has authorized a larger than usual increase in Social Security to partially offset the impact of inflation on retirees.  Good as that is for seniors, it does put more money in the already overheated economy when less money is needed.  Providing money to “keep up with inflation” only creates more inflation.

Based on political self-interest, we hear a lot of b*** s*** from the politicians in Washington.  However, the inflation will go on well into 2023 and it will only subside when the recession hits.  There may even be a period of stagflation – high prices and low growth.  You can go to the bank on that – if you have any reason to go to the bank.

So, there ‘tis.