Surprise, surprise. Americans remain fully employed, in spite of the Fed’s efforts to slow economic growth. The ‘official’ unemployment rate dropped to 3.4 percent in April. The last time it was this low was in 1968.
It is raising hopes we may avoid a recession.
“Total nonfarm payroll employment rose by 253,000 in April, and the unemployment rate changed little at 3.4 percent, the U.S. Bureau of Labor Statistics reported today Employment continued to trend up in professional and business services, health care, leisure and hospitality, and social assistance.”
What is going on? It peaked at 14 percent in April 2020 then plunged incredibly quickly after what was just a two month recession. This had never happened since World War Two.
Could it be the COVID-19 pandemic, the first worldwide pandemic in 100 years that has killed more then seven million citizens of the world?
Of course it was the pandemic, which has upset everyone’s prognostications, especially the Fed’s economists, because so much has changed in 100 years. But there are some similarities. The Spanish flu lasted from 1920-22, and then the Roaring Twenties kicked in that was the greatest economic expansion in history at the time.
And then came the Great Depression and a New Deal when Roosevelt’s government became the solution rather than the problem.
The same is happening today. Both Democrats and Republicans raised $trillions to pay for the COVID-19 recovery, putting actual checks in consumers’ pockets so that they still have some $1 trillion in savings, which has kept them spending, and employers hiring ever more employees.
Everyone seems to be working that wants to work. The BLS said among major worker groups, the unemployment rates for adult men (3.3 percent), adult women (3.1 percent), teenagers (9.2 percent), Whites (3.1 percent), Blacks (4.7 percent), Asians (2.8 percent), and Hispanics (4.4 percent) were at record lows.
Education and Health added 77,000 jobs, followed by Professional/Business and Leisure and Hospitality; all in the service sector. Governments added 23,000 jobs, which highlighted just how government spending has boosted growth.
The one factor that worries Fed governors most is that average hourly wages rose slightly to 4.4 percent, though it has fallen sharply from its high last year.
Stocks are rallying because it has reduced fears of an imminent recession. In fact, how is that possible now?
Consumer spending is the main engine of U.S. growth and grew 3.7 percent last month, I wrote last week. It was the biggest increase in almost two years. Businesses are now aggravating the inflation problem by not meeting consumers’ needs, reducing investments and production at a time when consumers are still consuming, thus keeping prices from declining more quickly.
What is the Fed to do that just raised their rate another 0.25 percent? Former Fed Chair Greenspan made the mistake of continuing to raise the Fed Funds rate 16 consecutive times over two years, this causing the housing bubble to bust and the Great Recession in 2008-09.
How can Chairman Powell avoid making the same mistake?
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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