Is Employment Recovering?

Financial FAQs

 “The number of job openings increased to 7.6 million in April, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and total separations decreased to 5.1 million and 5.0 million, respectively. Within separations, both quits (3.0 million) and layoffs and discharges (1.7 million) were little changed.” BLS.gov

FRED/jolts

The employment picture is improving, and there are prospects for more hiring ahead. The question is how long can it last with so much economic and geopolitical uncertainty?

The manufacturing boom is one reason for the employment surge because it’s building out our aging infrastructure, thanks to the Biden administration’s $1.2 trillion Infrastructure Investment and Jobs Act (IIJA). But manufacturing is growing also due to the binge in private investment for the AI build out of data centers I’ve been writing about—maybe as much as $2 trillion in mainly borrowed money.

Biden’s IIJA provides $550 billion in new funding to rebuild roads, bridges, public transit, water systems, and broadband access across the United States on top of $650 billion authorized by Congress for work on existing infrastructure, says Wikipedia.

The latest Institute For Supply Management survey reported:

“The Manufacturing PMI^® registered 54 percent in May, 1.3 percentage points higher than in April and its highest reading since May 2022 (55.9 percent). The overall economy continued in expansion for the 19th month in a row. (A Manufacturing PMI^® above 47.5 percent, over a period of time, generally indicates an expansion of the overall economy.) per Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee

The good news is also showing up in vastly improved jobs data. The April JOLTS report on job openings being advertised by employers jumped to 7.6 million from its low of 6.55 million last December.

There was just a 100,000 increase in hires (5.1 million) over separations (5 million), in the report, because employers remain cautious over the tariffs and Iran war. But it’s also a sign they are holding onto their existing employees.

Add to this payroll provider ADP reported that U.S. businesses created 122,000 new jobs in May to mark the biggest increase in 16 months. It’s another sign of a rebound in hiring in what’s been a tough labor market for job seekers.

“Hiring was more broad-based in May than we’ve seen in the last few years,” said Nela Richardson, chief economist at ADP, the U.S.’s largest processor of company payrolls. “The labor market continues to show sustained momentum going into the summer hiring season.”

So economic growth is holding up for now. Q1 was revised downward from an initial 2.0% to 1.6 %, due to slowing consumer spending. Second quarter growth estimates are in the 3% range, with the Atlanta Fed’s GDPNow estimate of second quarter growth at 3.0%.

But an unusually pessimistic result from the University of Michigan sentiment survey reports that inflation expectations are sky high, which will further slowdown spending as consumers become more careful with their money.

“Year-ahead inflation expectations inched up from 4.7% last month to 4.8% this month. The current reading substantially exceeds the 3.4% reading seen in February 2026 prior to the start of the Iran conflict, along with all 2024 readings. Long-run inflation expectations climbed from 3.5% in April to 3.9% in May, notably higher than the 2.8% to 3.2% range seen in 2024.”

So there are many caveats to future projections of the job market and a recovering manufacturing sector. The 2026 International Monetary Fund World Economic Outlook highlights how precarious this recovery is. Our economic wellbeing may depend on the duration of the Iran war, to no one’s surprise. If it lasts more than a few months, the likelihood of recession has increased

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Why the Decline in Job Vacancies?

 Financial FAQs

“The number of job openings was little changed at 6.9 million in February, the U.S. Bureau of Labor Statistics reported today. Over the month, hires decreased to 4.8 million, and total separations changed little at 5.0 million.” BLS.gov

FREDjobopenings

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) was bad news for workers, as per the slide in available jobs portrayed in the above graph of monthly job openings.

It has now fallen to just 6.9 million in February 2026, the total of available nonfarm payroll jobs tallied by the Labor Department. Actual job hires fell to 4.8 million while 5.0 million left the workforce, a net loss of 200,000 jobs.

The Iran War will add to the damage that has already been done to the U.S.—and maybe worldwide—economy from the single-minded focus on what is most important to President Trump and his Robber Barons; bringing back another Gilded Age with its ultra-consolidation of wealth that has caused record public debt that is being paid for by American taxpayers. 

Former Clinton Labor Secretary Robert Reich listed the economic damage from Trump’s first term alone. He (Trump) pledged to be “the greatest jobs president that God has ever created.”

He’s been the worst jobs president in American history. In his first term, Trump presided over a historic net loss of nearly 3 million jobs, the worst jobs numbers ever recorded under an American president, as tabulated by FactCheck.org.

FactCheck.org showed more the decline in Trump’s first term:

· The international trade deficit Trump promised to reduce went up. The U.S. trade deficit in goods and services in 2020 was the highest since 2008 and increased 36.3% from 2016.

· The number of people lacking health insurance rose by 3 million.

· The federal debt held by the public went up, from $14.4 trillion to $21.6 trillion.

And President Trump month-long war with Iran is adding to the damage with the blocked petroleum supply chain that provides so many necessary byproducts—such as fertilizer, natural gas and helium, for starters.

“After a month, your war has already cost 13 American lives, cost American taxpayers at least $30 billion, cost American consumers at least a dollar more per gallon of gas than they paid a month ago, pushed up food prices and mortgage rates, and pushed down the value of 401(k) retirement plans. It’s mangled supply chains for industries that rely on items such as fertilizer to grow food or helium to make computer chips,” said Professor Reich

So we shouldn’t be looking at the 1970’s era of stagflation for a result from the Iran War because of the damage already done in President Trump’s second term, whether the Strait is closed, or not. It may take longer to materialize but look more like another Great Recession, I said recently, that was caused by the economic mismanagement of another Republican administration involved in a Middle East war.

A key will be watching the employment picture this week, especially the Labor Department’s Friday unemployment report.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Too Many Job Openings?

 Financial FAQs

The number of job openings was little changed at 7.8 million in May, the U.S. Bureau of Labor Statistics reported today. Over the month, both hires and total separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, quits (3.3 million) and layoffs and discharges (1.6 million) changed little.” BLS.GOV

Calculated Risk

The Labor Department’s monthly JOLTS report can be confusing. When the BLS uses the term “little changed”, they mean changes that barely move the needle of the approximately 5 million jobs created and lost each month in the U.S. economy.

But there were still 7.8 million vacant jobs in May seeking workers, according to the Labor Department’s JOLTS report, whereas ADP, a U.S. private payrolls data collector, just reported companies eliminated 33,000 jobs last month, marking the first decline since March 2023.

We are now seeing a weakening in the jobs market that consumers are beginning to worry about in the various consumer confidence surveys and are already cutting back on their spending that drives most (70%) of economic growth.

The above graph shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. The difference between hirings and separations approximates the monthly number of jobs created.

How do we square the conflicting payroll data with the official U.S, unemployment report that follows end of the month? Private employers reduced jobs in June for the first time in more than two years, as U.S. trade wars created a “hesitancy to hire and a reluctance to replace departing workers,” said ADP chief economist Dr. Nela Richardson.

The service industries that fill the leisure activity, dining, professional services and transportation sectors lost 66,000 jobs, while the goods producers, such as construction and manufacturing gained 32,000 jobs.

That shouldn’t be a surprise, because large parts of the service industries rely on lower paid immigrants, many of them undocumented, and suddenly many are no longer to be found. The Department of Homeland Security may have rounded up some 100,000 to date but want to deport 3 million a year.

This will devastate the U.S. economy, because the service industries employ most (80 percent) of American workers. Why are Republicans ignoring that fact in the big beautiful (or ugly) bill that was sent back to the House to finalize?

Instead of being employed and supporting the American economy, the undocumented (mostly from the other Americas) will be incarcerated in concentration camps while being processed for deportation, much like the Nazis did in World War Two.

It’s not surprising since it’s Donald Trump’s Republican Party now that includes many Neo-Nazis (remember the Charlottesville torch carriers) among his MAGA supporters.

And companies that depend on imports must reckon with whatever the final tariffs rates will be. Trump has only announced one agreement with the UK to date, and a tentative agreement with Vietnam. The tariffs on Vietnamese imports with be raised to 20 percent, which includes products that have been rerouted from China to avoid Chinese tariffs. So the Vietnamese tariff hike may have an outsize effect.

Trump can continue to postpone the inevitable by delaying the tariff hikes for as long as possible with his TACO negotiating style (Trump Always Chickens Out). But Americans are not so foolish and will restrain their spending until we know who will ultimately pay for the higher tariffs.

Harlan Green © 2025

Follow Harlan on Twitter: https://twittter.com/HarlanGreen

Americans Still Fully Employed!

 Popular Economics Weekly

Total nonfarm payroll employment increased by 256,000 in December, and the unemployment rate changed little at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment trended up in health care, government, and social assistance. Retail trade added jobs in December, following a job loss in November.

FREDunemployment

It was a tremendous employment report. Then why did stock and bond values tank on Friday? December’s unemployment report was certainly good for workers. Employment is maxed out, with employers unable to hire new workers other than replacements for those retiring or changing jobs. The Labor Department’s JOLTS report showed that employers reported 8.1 million open job positions in December.

The strong employment report has reignited fears that the Fed will halt their rates reductions because of inflation fears. Almost everyone is currently predicting strong fourth quarter economic growth and continued full employment that has prevailed since January 2022.

The inflation ‘culprit’ (f you want to call it that) is strong government spending for all the construction and climate change projects being funded from the various Bidenomics’ bills.

In fact, it is Bidonomics, the $5 trillion plus investments in the US economy over this decade, that is keeping Americans fully employed. And it is boosting employee wages, as well, which is why inflation is proving so difficult to tame.

We are joined in the age-old battle of workers vs. owners, employees vs. employers, over how to divide our national wealth. Wall Street investors want lower inflation because it doesn’t dilute their wealth, while workers want full employment because it increases their wages.

So who is really complaining about our fully employed economy? Elon Musk, the world’s wealthiest Oligarch, for one. It is those that don’t like any inflation because it dilutes the value of their assets. Therefore the so-called efficiency experts led by Elon Musk want to shrink government spending without admitting it is the only thing keeping Americans fully employed.

Renown economist Mohamed El-Erian recently stated on CNBC’s After the Bell that the U.S. economy’s spectacular growth is the only thing keeping the world’s economies afloat, so why should we worry too much about higher inflation at this stage?

Well, it is triggering consumer worries about rising prices and has provided the propaganda tools that re-elected the party of oligarchs wanting to slash government programs that benefit wage earners most.

Expectations in the University of Michigan sentiment survey for inflation over the next year jumped to 3.3% in January from 2.8% in the prior month. It is the highest rate since May. Expectations for inflation over the next five years surged to 3.3% this month from 3% in December. That’s the highest since June 2008.

But consumers know how to adapt, especially with wages that are keeping ahead of inflation. They tend to look for more bargains when they see rising prices. So, shouldn’t our government main job be to keep workers fully employed and healthy rather than benefiting Elon Musk’s efficiency experts and Wall Street financiers?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Higher Economic Growth Ahead?

 Popular Economics Weekly

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.3 percent on December 9, unchanged from December 5 after rounding. After recent releases from the US Census Bureau and the US Bureau of Labor Statistics, a decrease in the nowcast of fourth-quarter real personal consumption expenditures growth was offset by increases in the nowcasts of fourth-quarter real gross private domestic investment growth and fourth-quarter real government spending growth.

BEA.gov

Almost everyone is currently predicting good fourth quarter (GDP) growth. Bank of America and Goldman Sachs are predicting it stays in the 2 percent range of past quarters. The Atlanta Fed GDPNow estimate for Q4 is an outlier, predicting 3.3 percent growth.

Why the seeming growth pickup? Consumer confidence has improved, for starters, as consumers earned enough and have enough savings to keep buying for the holidays. Next week’s retail sales figures will tell us more. Dow Jones is predicting sales could increase as much as +0.6 percent in November, up from +0.4 percent in October.

The Conference Board reported “Consumer confidence continued to improve in November and reached the top of the range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board. “November’s increase was mainly driven by more positive consumer assessments of the present situation, particularly regarding the labor market. Compared to October, consumers were also substantially more optimistic about future job availability, which reached its highest level in almost three years.

This is confirmed by the recent JOLTS survey from the Labor Department that reported there were still more than 7 million job openings, and 5.3 million hires in October.

AtlantaFedGDPNow

The Atlanta Fed based its higher GDP growth estimate on increased government spending, such as the $2 billion investment for Intel’s new chip factory in Arizona (part of the CHIPS Act), and higher private capital expenditures. Much of the capex spending is in the expansion of AI production, like NVIDIA’s, the leading AI chip manufacturer that has become the darling of Wall Street.

Donald Trump’s re-election might also be an ingredient, as he has been named Time Magazine’s Person of the Year for a second time. There is no question that he is dominating our national psyche.

“Since he began running for President in 2015, perhaps no single individual has played a larger role in changing the course of politics and history than Trump,” said Time Magazine’s announcement.

The question is will it mean better times for most Americans?

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Will Job Market Recover?

 The Mortgage Corner

The number of job openings was little changed at 7.7 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires changed little at 5.3 million. The number of total separations was little changed at 5.3 million. Within separations, quits (3.3 million) increased, but layoffs and discharges (1.6 million) changed little.

Calculated Risk

The above graph of job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS report show normal job growth, according to the Bureau of Labor Statistics. But will it recover from the Boeing and east coast strikes that laid off so many workers?

The JOLTS report doesn’t give much encouragement to Friday’s unemployment report for November, as the number of hires equaled the number of separations. The difference usually tells us the total number of job creations.

It’s hard to know what this means for the Trump administration’s next four years. Chairman Powell is still sounding dovish about another -0.25 percent rate cut in December, which will be helpful. But credit card rates are still as high as 30 percent, which is an insane borrowing rate for those using credit cards.

“The Fed’s goal all along has been to bring down inflation without a “painful rise in unemployment,” Powell said in remarks at the annual meeting of the National Association for Business Economics in Nashville,” per MarketWatch. “While the task is not complete, we have made a good deal of progress toward that outcome,” he said.

The Institute for Supply Management (ISM) surveys of both the service and manufacturing sectors were also static, with manufacturing not expanding at all and the service sector barely above its 50-point breakeven level.

“Demand remains weak, said Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®), “as companies prepare plans for 2025 with the benefit of the election cycle ending. Production execution eased in November, consistent with demand sluggishness and weak backlogs. Suppliers continue to have capacity, with lead times improving but some product shortages reappearing. Sixty-six percent of manufacturing gross domestic product (GDP) contracted in November, up from 63 percent in October.”

This is what happens between election cycles. Will the Trump administration carry out on its threats of giant tariffs, or deporting millions of undocumented immigrants who are employed in the service sector that includes professional services and construction? Construction is booming as the CHIPS and Infrastructure Acts pour $Trillions into mostly red state projects such as new computer chip manufacturing factories.

The service sector that also includes leisure activities such as dining and travel will wind down after the holidays. But the financial markets are still rallying on the hopes that further tax cuts will boost both bond and stock prices.

It’s a difficult time to predict what comes next. Further Fed rate cuts are desperately needed to revive the housing market, for instance.

Pending home sales ascended in October – the third consecutive month of increases – according to the National Association of REALTORS®. All four major U.S. regions experienced month-over-month gains in transactions, with the Northeast leading the way. Year-over-year, contract signings increased in all four U.S. regions, led by the West.

"Homebuying momentum is building after nearly two years of suppressed home sales." said NAR Chief Economist Lawrence Yun. "Even with mortgage rates modestly rising despite the Federal Reserve's decision to cut the short-term interbank lending rate in September, continuous job additions and more housing inventory are bringing more consumers to the market."

That gives homebuyers a ray of hope that interest rates will continue to decline, as well as for credit card users.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why No Recession?

 Financial FAQs

I said last month we know why the US economy is still growing. Consumers keep spending, and the unemployment rate, though rising, is just 4.3 percent. The second revision of second quarter economic growth confirms this as well, jumping from 2.4 to a 3.0 percent growth rate.

But the downward revision of -818,000 nonfarm payroll jobs by the BLS from March 2023 to March 2024 showed not as many jobs were created as originally estimated, and it has begun to panic the financial markets.

And if consumers don’t keep spending where they spend the most—leisure and healthcare—what will keep US from a recession? It’s government spending via Bidenomics, President Biden’s legislation to modernize the economy. We should ignore the protests from conservatives of too much government spending and too much public debt for the moment. It’s what is keeping us at full employment.

Paul Krugman opined earlier in the year on the particulars of President Biden’s ‘New’ New Deal legislation, which is investing as much in the U.S. economy as Roosevelt’s New Deal.

“The fact, however, is that Biden has put in place a very ambitious agenda — major enhancements of Obamacare, student debt relief, big infrastructure spending, large-scale promotion of semiconductors and green energy that have led to a surge in manufacturing investment.”

FREDmanfacturing

It has led to a very big jump in Manufacturing investment, for starters, that is creating more high-paying jobs—800,000 manufacturing jobs to date. Although overall manufacturing activity has been shrinking per the latest surveys—even with investments in the construction of new Manufacturing facilities having soared from $78 billion in 2020 to $237 billion this July—it should means better days ahead for the manufacturing sector.

This is important because July’s BLS Job Openings and Labor Turnover Survey (JOLTS) report shows a weakening labor market. The number of job openings dropped to 7.7 million from its high of 11 million openings in 2022 as the economy rushed to recover from the COVID-19 pandemic. (That’s still a lot of jobs looking for workers.)

The number of job openings decreased in health care and social assistance (-187,000); state and local government, excluding education (-101,000); and transportation, warehousing, and utilities (-88,000). Job openings increased in professional and business services (+178,000) and in federal government (+28,000).

 BLS.gov

This is further evidence that growth will continue and perhaps keep consumers shopping for bargains, which is why inflation and rising prices should no longer be a problem, even as the Fed begins to cut interest rates this month.

Consumer confidence is rising again as well, which should help sustain the rally, as consumers seem to be worrying less about their job, per the Conference Board survey, even though personal savings have declined to dangerous lows.

“The Conference Board Consumer Confidence Index® rose in August to 103.3 (1985=100), from an upwardly revised 101.9 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 134.4 from 133.1 in July.”

So we still depend on consumers to carry most of the load to sustain the strong growth, but government has to give a hand to keep them “in the game,” as I’ve been saying.

We will know more come Friday’s unemployment report.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

Plenty of Available Jobs!

 Financial FAQs

As a precursor to July’s unemployment report, the Labor Department’s JOLTS report that measures the number of job openings—jobs waiting to be filled—has just come out. The number of openings is still the highest in decades, per the FRED graph (it peaked during the pandemic shutdown).

“The number of job openings was unchanged at 8.2 million on the last business day of June, the U.S. Bureau of Labor Statistics reported. Over the month, both the number of hires and total separations were little changed at 5.3 million and 5.1 million, respectively.”

This means there aren’t enough workers to fill those 8.2 million job openings and 5.3 million hires in June. Our economy remains fully employed, despite the Fed’s attempts to restrict the number of hires by keeping interest rates high.

Why do they want higher unemployment when one of the Fed’s twin mandates is maximum employment (with stable inflation)? Because many of the Fed Governors seem to subscribe to an economic theory from the 1970s by the conservative Nobel Prize Economist Milton Friedman who postulated that the amount of money in circulation controls economic activity. Therefore the Fed has reasoned keeping interest rates high will slow growth enough to control inflation.

But this inflationary surge was caused by worldwide supply shortages from the pandemic shutdown that led to a temporary inflation surge, not too much money in circulation. Inflation has declined despite the abundance of money still in circulation to pay for our economic renewal— infrastructure projects and computer chip factories, for starters—for which $trillions are needed.

FREDjobopenings

The inflation decline has been corroborated while second quarter GDP growth doubled from 1.4 percent to 2.8 percent, I reported last week. Despite such a growth surge, its price index for gross domestic purchases increased just 2.3 percent in the second quarter, compared with an increase of 3.1 percent in the first quarter. The personal consumption expenditures (PCE) price index increased just 2.6 percent, compared with an increase of 3.4 percent in Q1.

These declining inflation rates are telling us it’s time for a rate drop. But are consumers getting the message? The Fed’s money tightening has been making consumers more cautious in their outlook but they aren’t seeing much light at the end of the inflation tunnel. The Conference Board’s latest Consumer Confidence Index is still showing pessimism.

Conference Board

Conference Board Chief Economist Dana Peterson said in its latest release, ““The proportion of consumers predicting a forthcoming recession ticked up in July but remains well below the 2023 peak. Consumers’ assessments of their Family’s Financial Situation—both currently and over the next six months—was less positive. Indeed, assessments of familial finances have deteriorated continuously since the beginning of 2024.”

Consumers shouldn’t be blamed for their pessimism, despite being fully employed. Prices are still 20 percent higher on average than before the pandemic. But their moods should considerably improve when the Fed finally begins to cut interest rates, and their fears lesson of an upcoming recession.

We are at the beginning, not the end of the post-pandemic recovery, in other words, which could continue for most of this decade and is generating many new high-paying jobs.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

U.S. Economy Still To Hot?

 Financial FAQs

The battle is intensifying between the Fed Governors’ inflation doves and hawks as we approach November. Chairman Powell says inflation is getting closer to the Fed’s 2 percent target when we enter the 3^rd quarter 2024, but he’s still not confident enough to advocate cutting interest rates.

This is while the Labor Department’s JOLTS report showed the number of job openings in the U.S. rebounded in May after falling to a more than three-year low, showing the demand for labor is still high.

It will only make the Fed’s decisions more difficult, since there is a lot of disagreement over how much the US economy will continue to grow (which the Fed worries might keep the inflation numbers too high).

Job postings rose to 8.1 million in May from 7.9 million in April, the Labor Department said Tuesday in its Job Opening and Labor Turnover Survey (JOLTS). Most of the increased hiring was in government. New openings have fallen from a record 12 million in 2022, but they are still higher than they were before the pandemic.

FREDjobopenings

An economic conference in Sintra, Portugal highlighted both sides of the inflation argument, with Chicago Fed President Goolsby saying Fed policy is now becoming too restrictive as the economy slows. It’s therefore time to consider cutting interest rates, though he didn’t want to “tie the Fed’s hand” by predicting when.

The best news was last week’s very weak Personal Consumption Expenditure (PCE) inflation index, which was flat. The Fed’s preferred inflation measure didn’t increase at all in June and annual inflation is now down to 2.6 percent.

And NYTimes Paul Krugman remarked in his latest Op-ed, “there’s a good case for arguing that inflation has been defeated, and that the Fed should start cutting interest rates.”

Friday will tell us another statistic the Fed looks at, the ‘official” US unemployment report, which will show how accurate are the job numbers.

Total nonfarm payroll employment increased by 272,000 in May, I wrote last month,, higher than the average monthly gain of 232,000 over the prior 12 months. The unemployment rate rose to 4.0 percent from 3.9 percent, slightly higher than the pre-pandemic levels of 3.5 percent when the average inflation rate was under 2 percent, as portrayed in the truncated FRED graph (gray line is 2020 pandemic recession), that many seem to remember so fondly.

The real argument is over who benefits from lower interest rates. Lower borrowing costs obviously benefit consumers in general; most in the middle and lower income brackets. But the Fed’s fear is that consumers will then spend more and thus drive up prices again, hence their hesitation in cutting interest rates just yet.

That in turn affects economic growth, which everyone wants, but not too much, if you can believe that. It stimulates more hires, which boosts wages, which the Fed believes is now the main inflation culprit.

The best predictor of economic growth has been the Atlanta Fed’s GDPNow estimate that gets revised at least twice a month. It has just been adjusted downward again in July1 to 1.7 percent, from as high in 3 percent one month ago.

AtlantaFed

It is now in line with the Blue Chip economists’ consensus of 2^nd quarter growth, which should begin to worry Powell’s Federal Reserve. Real personal consumption and domestic investment have been falling, in line with last week’s PCE report I mentioned above.

Retail sales last month were also flat, another concern as consumers look for more bargains and retailers such as Target and Walmart announce ever more discounts. The slowdown is now becoming a definite trend and better the Fed becomes proactive by nipping any downturn in the bud before the November election.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Should the Fed Do?

 Popular Economics Weekly

The big surprise at Federal Reserve Chairman Powell’s latest press conference was despite strong job numbers and inflation still above the Fed’s 2 percent target rate, the Fed governors are acting more dovish.

Why? They don’t want a repeat of the 1970’s stagflationary era, when economic growth slowed but inflation remained high.

The just released minutes of its last FOMC meeting highlighted the Fed Governors’ worries. And Powell at the press conference said, "I think it is unlikely that the next rate move would be a hike…the Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year.”

Powell also said, as quoted on MarketWatch, “I was around for stagflation, and it was 10% unemployment, it was high-single-digit inflation,” he said. “Right now we have 3% growth, which is pretty solid growth, I would, say by any measure, and we have inflation running under 3%.”

“So I don’t see the ‘stag’ or the ‘flation,’ ” he said.

That’s all true. Last year’s GDP growth rate averaged 3 percent and the annual inflation rate with its preferred PCE index had declined to 2.5 percent.

Calculated Risk

This is big news in an economy still at full employment. The latest JOLTS report showed more than 8 million job openings in April, basically unchanged, according to the latest Bureau of Labor Statistics report. (Black line in graph shows job vacancies.) Whereas the Federal Reserve and financial markets have been hoping for weaker job numbers as insurance that inflation would continue to decline.

“Over the month, the number of hires changed little at 5.5 million while the number of total separations decreased to 5.2 million,” said the BLS.

That means there were 300,000 more hires than total separations, which could mean Friday’s official April unemployment report would be basically unchanged from last month’s 303,000 nonfarm payrolls increase.

The monthly inflation figures have ticked up slightly of late but remain in the 2-3 percent range annually. It has upset some markets (e.g., bond funds are currently losing money.)

Why hope for slower growth, anyway? Isn’t Wall Street supposed to react to corporate earnings? Some 80 percent of businesses reported higher earnings in the first quarter, even though the initial first quarter GDP growth estimate was just 1.6 percent, down from last quarter’s 3.6 percent.

It’s the dilemma that our Federal Reserve has put the markets in. The Fed refuses to concede that there is a soft landing, which means interest rates will remain at record heights for the present, as high as they were in 2008 that caused the Great Recession.

But the Great Recession was also caused by slack or no market oversight by a Republican administration that allowed A+ ratings on junk bond and mortgage securities that ultimately busted the housing bubble.

Powell also cautioned that the economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

It was a remarkable press conference designed to assure Americans that the Federal Reserve wasn’t going to be the spoiler of this post-pandemic recovery in an election year.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Q1 Growth Even Better

 The Mortgage Corner

The post-pandemic recovery is looking better this year, as higher estimates for 2024 economic growth come in.

The job market is still hot, which is why consumers keep shopping until they drop, to use a common expression for their stalwart behavior in the face of sky-high interest rates.

But there are danger signs if the Fed doesn’t begin to drop their short-term rates sooner rather than later, with just three 0.25 percent rate cuts predicted this year. This will not do much to alleviate a looming credit crunch, and effects on borrowers of the current 8.5 percent Wall Street Prime Rate.

But first the good news. The Atlanta Fed’s GDPNow estimate of first quarter GDP growth is updated regularly, and it’s improved again after some fluctuations.

AtlantaFederalReserve

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 is 2.8 percent on April 1, up from 2.3 percent on March 29. The uptick was mainly due to gains in nowcasts of first-quarter real personal consumption expenditures (PCE) growth and first-quarter real gross private domestic growth.”

The so-called Blue Chip Consensus estimate of GDP growth shaded gray in the graph that ranges from 1 to 2.5 percent has also been trending upward.

And the final reading of Q4 2023 U.S. Gross Domestic Product growth adjusted for inflation (real GDP) was raised slightly to a 3.4% annual pace, reflecting strong consumer spending.

FRED/CalcuatedRisk

Why the happier numbers? The US economy keeps creating more jobs, hence the large number of job vacancies in the JOLTS report. This is a gauge of the demand for labor. It changed little from January at 8.8 million job openings employers say they want to fill on the last business day of February, the U.S. Bureau of Labor Statistics reported today.

The Calculated Risk graph of the JOLTS report shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column). There were 5.8 million hires and 5.6 million separations, so the 200,000 difference approximates the net number of new jobs filled.

This will help us to estimate this Friday’s unemployment rate published by the Bureau of Labor Statistics. Since JOLTS was little changed, the unemployment report should be about the same as last Month’s 225,000 nonfarm payroll jobs increase, though the unemployment rate rose to 3.9 percent.

The University of Michigan sentiment survey also showed consumers see better days ahead.

“Expected business conditions remained substantially higher than last autumn, with short-run expectations now 63% above and long run expectations 46% above November 2023 readings. For all but one index component, readings this month were higher than all values between mid-2021 and the end of 2023.”

Now the bad news. The question is, will the Fed heed the warning of a rising unemployment rate? Fed Governors still seem convinced that the key to reaching their 2 percent inflation target rate is to cool the hot labor market. That means waiting for the unemployment rate to rise even higher than 3.9 percent, and the loss of maybe millions of jobs.

Economists are beginning to stress the urgency of future Fed rate cuts. I mentioned last week that Claudia Sahm a former Federal Reserve economist noted for creating a formula for predicting upcoming recessions, is one such calling for the Fed to cut rates sooner.

“But recessions are like snowballs, Sahm said: They start very small but can grow big enough to trigger avalanches, which can then sweep down on the economy — wiping away jobs, economic growth and income for millions of people.”

The 8.5 percent Prime Rate will eventually begin to toll on consumers pocketbooks, since most consumers rely on some form of credit. The question is not if, but when the recession bell will toll if Fed officials react too slowly to the warnings.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitteor.com/HarlanGreen

More Jobs in Year Ahead?

 Financial FAQs

The US economy hasn’t slowed. Fourth quarter Gross Domestic Product (GDP) growth was revised downward from 3.3 percent to 3.2 percent in the second estimate, and predictions for first quarter 2024 GDP growth are hovering between 2-3 percent.

The focus now shifts to Friday’s upcoming unemployment report. Today’s Job Openings and Labor Turnover Survey (JOLTS) will help to predict the jobs picture. The JOLTS report is holding at 8.9 million job openings, same as last month, so Friday’s unemployment rate should remain at a very low 3.7 percent.

Calculated Risk’s wonderful graph gives us the best visual portrayal of monthly changes in job creation. The black line portrays job openings, dark blue line portrays hires, and red bars show total separations. Net job formation has been in a downward trend since the Fed began to raise interest rates.

“The number of job openings changed little at 8.9 million on the last business day of January, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.”

The difference between hires and job separations is closer to the actual number of new jobs created in February—400,000 in this case. But after seasonal adjustments that attempt to ascertain the increase over last year at this time, new nonfarm payrolls jobs should be around 200,000 in Friday’s report, a very strong jobs report.

Calculate Risk

It shows us why there has been a record number of jobs created over the past two years.

Consumer spending is the main reason growth has been so strong. It was revised upward from 2.8 percent to 3 percent annually in last week’s Personal Consumption Expenditure’s report.

Inflation has been tamed as well. The personal consumption expenditures (PCE) price index increased just 1.8 percent, an upward revision of 0.1 percentage point. Excluding food and energy prices, the PCE price index increased 2.1 percent, an upward revision of 0.1 percentage point.

So why is the Fed waiting any longer to drop interest rates? They seem to be wanting consumers to spend less. Yet regional banks that specialize in commercial loans have been hurting since commercial office vacancy rates have soared. They need lower interest rates so they can refinance all those commercial loans about to come due.

Fed Chair Powell in his latest congressional testimony, said "What we want is just more evidence that will give us more confidence that inflation is on a path down to 2% sustainably."

But annual inflation is already below 2 percent with the PCE and wholesale Producer Price Indexes. What more evidence do they need?

The Fed is again playing its historical role of being the last to react to changing economic conditions—in this case the possibility of more bank failures if they don’t begin to lower short term interest rates soon.

Harlan Green © 2024

Harlan Green on Twitter: https://twitter.com/HarlanGreen

Higher Productivity Lowers Inflation

 Financial FAQs

Why has the Fed got it so wrong with inflation, even though the inflation rate has been falling steadily for more than a year?

Paul Krugman in a recent NYTimes Op-ed said the personal consumption expenditure deflator (PCE) excluding food and energy—the Fed’s preferred inflation indicator—has risen at an annual rate of only 2.5 percent over the past six months, down from 5.7 percent in March 2022. When food and energy prices are added it still rose just 2.5 percent.

Even U.S. unit labor costs were much weaker than initially thought in the third quarter amid surging labor productivity, which meant unit labor costs (i.e., wages) weren’t pushing inflation higher. So-called ‘sticky wages’ were the main reason the Fed kept saying inflation would remain high, hence their refusal to say when they would begin to drop interest rates.

The markets now believe it could begin as early as in May next year.

FREDproductivity

“Unit labor costs fell at a 1.2% annualized rate in the third quarter, the Labor Department's Bureau of Labor Statistics said, revised down from the previously reported 0.8% pace of decline. Unit labor costs rose at a 1.6% rate from a year ago, the smallest year-on-year increase since the second quarter of 2021.”

Slowing wage pressures were underscored by the ADP National Employment Report, which showed that private payrolls increased by just 103,000 jobs in November after rising 106,000 in October. ADP said almost all the new jobs were created in transportation, education, and health care.

There is another obscure economic statistic that can show a better next year. It’s the Labor Department’s JOLTS report that counts the number of job openings each month. The number of openings was sky-high after the COVID pandemic as evidenced by the black line in Calculated Risk’s graph because employers wanted to re-hire workers as the economy recovered so quickly.

Calculated Risk/BLS.gov

It has been steadily declining since then, as has the number of hires (blue line).

But the unemployment rate is still below 4 percent (currently 3.9%) and has been since December 2021. Americans are fully employed, and companies are wanting to hire more despite inflation and soaring interest rates.

“The number of job openings decreased to 8.7 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 5.9 million and 5.6 million, respectively. Within separations, quits (3.6 million) and layoffs and discharges (1.6 million) changed little.”

The difference between hires (5.9 million) and separations (5.6 million) in the JOLTS report means approximately 300,000 new jobs were created in November, changing little in the employment picture.

That should tell us there will be a strong November unemployment report on Friday, though slower GDP growth is forecast for the fourth quarter. Americans are experiencing an incredible recovery, fastest in the developed world, including China.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

No More Rate Hikes?

 Financial FAQs

Calculated Risk

The latest Job Openings and Labor Turnover Survey (JOLTS) report by the BLS shows there are still a lot of job openings, but that should continue to decline from the post-pandemic high of 12 million job vacancies in 2022.

Could that mean no more rate hikes by the Fed this year? Pundits and economists are mixed on that possibility in part because Fed Chair Powell gave mixed signals about Fed intentions at his annual Jackson Hole speech—from saying the job market is too tight to the possibility of no recession and a soft-landing scenario maybe next year.

“The number of job openings edged down to 8.8 million on the last business day of July, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 5.8 million and 5.5 million, respectively. Within separations, quits (3.5 million) decreased, while layoffs and discharges (1.6 million) changed little.”

The key fact was that the number of job openings (black line in graph) has been declining sharply, and the number of hires is declining more slowly (blue line). There were just 187,000 nonfarm payroll jobs added in July’s unemployment report. But retailers are gearing up for the holidays.

Over the month, job openings decreased in professional and business services (-198,000); health care and social assistance (-130,000); state and local government, which had increased the most in last month’s unemployment report. Whereas job openings increased in information (+101,000) and in transportation, warehousing, and utilities (+75,000), jobs in demand over the holidays.

The August unemployment report comes out this Friday, and there’s no real consensus by economists on what it might be.

Other news was a big drop in one consumer confidence report by the Conference Board that said consumers are losing confidence because energy and food prices are rising again, just when they thought inflation was being tamed.

Although bad news for consumers, it’s music to the ears of Powell, since it could mean less consumer spending, which in turn could depress the inflation rate without further Fed actions.

What is making Fed officials nervous is the Atlanta Federal Reserve’s advance estimate of third quarter economic growth jumping to 5.9 percent because of higher third-quarter real gross private domestic investment growth, thought to be an almost unbelievable growth rate just weeks ago.

I said last week that GDP growth is soaring because private capital spending has also picked up, proving that governments must kick start many of those projects that don’t promise enough profits to bring in private investment, i.e., long term projects like roads, bridges that pay for future growth.

But said spending doesn’t have to be inflationary, as inflation hawks maintain. It inflates the budget, but doesn’t have to boost inflation if it’s paid for; i.e., if tax revenues keep up with spending, which is after all a reinvestment in our productivity, just as private industry does with its capital spending.

This is the truth that Wall Street and the inflation hawks don’t like to hear, either. It’s the chicken and the egg problem. Inflation occurs because not enough of something is produced when demand is high for such things. Policies that slow growth are counterproductive, because they seek to dampen demand rather than spend to produce more.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Still Many Job Openings!

 Financial FAQs

Calculated Risk Blog

It’s hard to reconcile the recent downgrade of US Treasury debt by Fitch Ratings, one of the three major debt rating agencies, to AA+ from AAA, with the US economy still at full employment.

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” it said. “Several economic shocks” as well as tax cuts and new spending initiatives “have contributed to successive debt increases over the last decade,” reported MarketWatch on the downgrade.

The Bureau of Labor Statistics Job Opening and Labor Turnover Survey (JOLTS) reported an average of 5.9 million hires per month (blue line in graph), and total separations of 5.6 million, while the number of job openings has declined to 9.8 million range (black line).

That’s still a lot of job openings, mostly in government and services. Openings increased in health care and social assistance (+136,000) and in state and local government, excluding education (+62,000). Job openings decreased in transportation, warehousing, and utilities (-78,000), state and local government education (-29,000), and federal government (-21,000), said the Bureau of Labor Statistics press release.

Fitch maintained that “tighter” credit, weakening investment in business, and a “slowdown” in consumption “will push the U.S. economy into a mild recession” in the fourth quarter of this year and the first three months of next year, reported MarketWatch.

This is although most economists now see little danger of any recession at all; maybe just a ‘soft landing’ that slows economic growth once the Fed ends its interest rate hikes.

That doesn’t mean it hasn’t been a wild ride since the pandemic-induced disruptions.

The Calculated Risk graph tells the best tale of the pandemic—what our economy has endured from the effects of COVID-19. There were 13.406 million job layoffs and discharges in March 2020 (red bar spike in graph) during the nationwide shutdown when city streets emptied from the mandatory lock downs and home stays and wild animals roamed the streets.

It resulted in the shortest recession ever—just two months, April-May 2020—then economic growth suddenly reversed, and businesses hired 8 million workers (blue line) in the next couple of months.

The JOLTS report also tells us the difference between hires and total separations has averaged some 300,000 nonfarm payroll jobs, which approximates the average monthly job creations this year.

This is what Bidenomics is all about, the various aid programs and bills enacted by congress to modernize the US economy and reduce global warming. It has created something like six million jobs since President Biden took office, and maybe 3,600,000 more jobs this year.

It also tells us why the US economy continues to expand in all sectors—with consumers as well as in manufacturing. Consumers provided most of the 2.4 percent increase in Gross Domestic Product (GDP) in the ‘advance’ (first of three) estimates of second quarter economic growth.

This should confirm that no recession is imminent this year. Even if growth in Q3 and Q4 slowed, the overall year’s growth would still be positive.

Goldman Sachs chief economist, Jan Hatzius is one of the major economists who trimmed the probability of a recession in the next 12 months to 20 percent from 25 percent — well below the 54 percent median among forecasters who participated in the last Wall Street Journey survey.

“The main reason for our cut is that the recent data have reinforced our confidence that bringing inflation down to an acceptable level will not require a recession,” said Hatzius.

And as I reported earlier, Federal Reserve Chair Powell said the Fed Governors now believe we can avoid a recession at Wednesday’s post-FOMC meeting, after announcing raising the benchmark interest rate to a range of 5.25 percent to 5.5 percent, the highest level in 22 years, in order to combat “elevated” inflation.

Consumers also like the continued growth, according to the Conference Board’s July Confidence Index that jumped from 110.1 to 117.

“Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations,” said Dana Peterson, Chief Economist at The Conference Board. “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”

We should wait for Friday’s latest official unemployment report for the most recent unemployment picture, but it looks like Fitch Ratings is an outlier on the soundness of the US economy.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Fed Fighting Wrong Battle

 Financial FAQs

CalculatedRisk

First Republic Bank’s takeover by the FDIC highlighted just how vulnerable our banking system is to higher interest rates. It had more than 80 percent uninsured deposits, just like the other failed banks vulnerable to higher interest rates that reduced the value of their assets.

So even though higher interest rates have been causing most harm to the banking system, causing panicky depositors to withdraw their funds, the Fed Governors don’t seem ready to quit raising interest rates. We will know more tomorrow at the end of their two-day FOMC meeting.

The Fed is focusing instead on the job market, believing rising wages are the main inflation culprit, and higher interest rates will slow employers’ demand for more workers.

That is already happening, as the Labor Department’s Job Opening and Labor Turnover Survey (JOLTS) March report showed a softening labor market.

The JOLTS report said layoffs jumped by 248,000 to 1.8 million, the highest level since December 2020. The increase was led by the construction industry, which shed 112,000 positions. The decline likely reflected the job losses in the housing market, which has been hammered by higher mortgage rates.

Accommodation and food services lost 63,000 jobs, while the health care and social assistance category reported 42,000 layoffs. Employment in the leisure and hospitality sector remains below its pre-pandemic levels.

And wage increases are also lessening as economic growth has slowed to 1.1 percent in the first quarter 2023 from 2.6 percent growth in last quarter of 2022.

Yet the real inflation culprit is lack of adequate goods and services that has been unable to meet such a soaring demand for more supplies, exacerbated by higher borrowing costs. Factory orders, for instance, have already weakened. U.S. manufactured goods rose just 0.9 percent in March, the Commerce Department said Tuesday. The increase followed two months of decline.

The Fed isn’t helping matters by wanting to raise interest rates enough to boost unemployment from the current 3.5 percent to 4 to 5 percent. Fewer working employees also reduces said supply.

Which brings us to other reasons supply chains aren’t producing more—higher energy prices and higher tariffs that raise import costs, and a rising tide of economic nationalism that encourages more to be ‘Made in USA’ and less foreign trade that also disrupts supply-chains.

Nobel Prize-winner Joseph Stiglitz has been most vocal on the harm continuing rate increases are causing in a recent Project-Syndicate article.

“The Fed, like other independent central banks, jealously guards its credibility. The risk of losing it has been cited as the reason for the Fed’s interest-rate hikes of the past year, which went far beyond normalizing the ultra-low rates that characterized the post-2008 era. But by failing to recognize the risks posed by its rapid rate increases, and how more than a decade of near-zero interest rates had exacerbated these risks, the Fed undermined its own credibility – precisely the outcome it sought to avoid.”

I said last week Treasury Secretary Janet Yellen in a recent Fareed Zakariah interview on CNN thought an economic soft landing was possible, despite warnings that the recent bank failures could cause banks to tighten in their lending criteria, contributing to a slowing economy.

It is now obvious that higher interest rates are harming the banking system. Leading economists are also worrying. Will Chairman Powell and the Fed Governors listen?

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

More Soft Landing News!

 The Mortgage Corner

The banking failures have begun to raise hopes the Fed will take a pause in its rate hikes. Now more signs of a weakening economy have added to that possibility, a real possibility the Fed will cease and desist with its obsession that inflation is still out of control. If so, a so-called ‘soft landing’—the economy slowing, but not entering a recession—is possible.

Calculated Risk

The latest JOLTS report of fewer job vacancies and a shrinking manufacturing sector are two such signs.

“The number of job openings decreased to 9.9 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 6.2 million and 5.8 million, respectively. Within separations, quits (4.0 million) edged up, while layoffs and discharges (1.5 million) decreased.”

The gap has therefore narrowed between the number of jobs available (vacancies) and actual hires. There were as many as 11.8 million job vacancies in early 2022.

Another sign of a slowdown is the faltering manufacturing sector. Per the Institute for Supply Management’s manufacturing survey, it dropped to 46.3 percent from 47.7 percent in the prior month. That’s the lowest level since May 2020, when the pandemic slowed down much of the U.S. economy.

The ISM’s service sector has slowed as well from 55.1 but remained positive at 51.2. It has contracted just once in the past 34 months, this past December.

“There has been a pullback in the rate of growth for the services sector,’ said survey director Anthony Nieves, “attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”

And interest rates are finally beginning to decline after their record rise from essentially zero for short-term rates. Falling mortgage rates in particular are boosting the housing market.

The most popular 30-year conforming fixed rate is now down to 5.625 percent for 1 origination point, and 6.0 percent for 0 points for borrowers with excellent credit. That’s a full percentage point drop from its highs.

I reported in a recent blog that housing prices are finally declining in some regions in concert with lower mortgage rates, which has led to an early buying season.

“I’m quite surprised,” Lawrence Yun, chief economist at the National Association of Realtors said. “The recovery is coming stronger, [but] maybe it will deflate again if the mortgage rates get too high… [and] mortgage rates have a very big influence.”

Signs of lower inflation are now cropping up everywhere, which should help the Fed Governors to decide it is a good time for a time out in raising interest rates further.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

More Jobs Available Than Ever

 The Mortgage Corner

BLS.gov

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.

EPI.org

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

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen