A preview of December’s official unemployment report was given today. Employers continued to fight the Fed by offering more jobs in the December Bureau of Labor Statistics JOLTS report, its Job Openings and Labor Turnover Survey.
The number of job openings increased to 11 million from 10.4 million in November, signaling employers still see a huge demand for their products and services—mainly in retail and leisure activities.
“On the last business day of December, the number and rate of job openings increased to 11.0 million and 6.7 percent, respectively,” said the BLS. “In December, the largest increases in job openings were in accommodation and food services (+409,000), retail trade (+134,000), and construction (+82,000). The number of job openings decreased in information (-107,000).”
The Fed Governors probably won’t like the JOLTS report, as they believe it means inflation won’t continue to decline—or will decline too slowly. They seem to believe almost religiously that full employment is synonymous with high inflation.
So does former Treasury Secretary Larry Summers, apparently, on Bloomberg News, who has been leading the inflation hawks.
“We need five years of unemployment above 5% to contain inflation -- in other words, we need two years of 7.5% unemployment or five years of 6% unemployment or one year of 10% unemployment,” said Summers said in a speech in London Monday. “There are numbers that are remarkably discouraging relative to the Fed Reserve view.”
His remarks are based on s a horrific thesis of so-called classical economic theory that no longer applies, and which even some Fed Governors are saying they no longer believe.
In fact, the swift decline in inflation since last June occurred in the face of continuing full employment and a record-low unemployment rate.
Then why is inflation now declining so fast? Lets’ return to an even more basic economic theorem: the Law of Supply and Demand. Supplies are now catching up to said demand for goods and services, which is reflected in falling commodity (like oil and food grain) prices.
Inflation came from the aftereffects of accelerating growth after the COVID shutdowns in early 2020 getting ahead of supply-chains, hence the sudden shortages were due to the pandemic shutdowns, the Ukraine war, and China’s ongoing COVID problems.
And because world trade has become global, we are finding alternatives to these shortages.
So rising wages of employees are no longer the major inflation threat. The Economic Policy Institute, a labor think tank, provides a simple graphic to explain why—the widening gap between what employees produce and what they earn from their labor since 1980.
Until 1979, labor’s compensation rose in tandem with labor productivity. But then the gap widened so that labor productivity has increased 64.7 percent from 1979 to 2021, whereas a typical worker’s compensation increased just 17.3 percent, not even keeping up with inflation.
Where did the rest of the wealth end up that has been generated since 1979? It’s the reason corporate profits as a percentage of GDP were the highest ever in the summer of 2022.
The good news is that Fed Chairman Powell’s remarks after this Wednesday’s announcement of its one-quarter percent rate hike is indicating that the Fed Governors are not listening to Larry Summers.
But are they listening to wage-earners who will suffer most from a recession?
Harlan Green © 2023
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