A terrific February employment report is further evidence the US economy has made a soft landing.
Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate ticked up slightly to 3.9 percent from 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.
Education and Health created 85,000 new jobs, Leisure & Hospitality 58,000, and Government 52,000 more jobs. Construction, Retail trade, and Transportation- warehousing created another 62,000 jobs in February.
What does this really mean? That employment and economic growth have stabilized in a very good place, with more good new jobs created, the unemployment rate still below 4 percent and average hourly ages rising faster than inflation.
American consumers and Fed officials can breathe easier this year, and the Fed can begin to lower interest rates to hedge against the damage from future shocks to the economy, rather than worry about higher inflation ahead (i.e., the danger of deflation rather than inflation).
Former St Louis Fed President James Bullard believes Chairman Powell’s Fed will now lower interest rates sooner. Otherwise the Fed may get behind on rate cuts if the economy normalizes over the second half of the year, he said in an interview with MarketWatch’s Greg Robb. It would be awkward for the Fed to have inflation close to 2% with the Fed’s benchmark policy rate in the range of 5.25%-5.5%, Bullard said.
This is while “The price index for gross domestic purchases (GDP) increased 1.9 percent in the fourth quarter, compared with an increase of 2.9 percent in the third quarter. The personal consumption expenditures (PCE) price index increased 1.7 percent, compared with an increase of 2.6 percent. Excluding food and energy prices, the PCE price index increased 2.0 percent, the same change as the third quarter.”
Why has inflation fallen so dramatically? I’ve been saying there are a number of reasons, beginning with the fact that the supply chain of goods and services has caught up to the demand by consumers and companies after the pandemic. But also, labor productivity, the amount of goods produced per worker-hour, has risen sharply, largely because of new technologies such as AI, which has stream-lined supply chains and shortened delivery times.
FREDlaborproductivity
The productivity of American workers rose at a 3.2 percent annual rate in the fourth quarter. Year over year, productivity has increased by a revised 2.6 percent. That’s the largest increase since the first quarter of 2021.
This will keep inflation low for the rest of this year, maybe too low if the Fed doesn’t listen to Bullard, and the unemployment rate continues to tick higher in months ahead.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment