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

Consumer Incomes/Sentiment Still Rising

 Financial FAQs

BEA.gov

January consumer spending rose 1.8 percent (orange bar in graph) in a month, while personal incomes rose 0.6 percent in the BEA’s latest personal income (PCE) report out Friday.

This is one more headache for the Fed that wants lower incomes and spending to bring down inflation. But that ain’t happening in January, at least.

From the same month one year ago, the PCE price index for January increased 5.4 percent. Prices for goods increased 4.7 percent and prices for services increased 5.7 percent. Food prices increased 11.1 percent and energy prices increased 9.6 percent. Excluding food and energy, the PCE price index increased 4.7 percent from one year ago.

Inflation is declining, but it still caused financial markets to panic for no real reason. Such a spike in spending (orange bar in the above graph) after two negative months and the concomitant inflation rate is temporary because of the huge 8 percent SocSec inflation adjustment in January.

No wonder consumer sentiments are on the rise. The University of Michigan final monthly survey for February confirmed the preliminary February reading, rising 3 percent above January. They don’t see much of a drop in employment, either, per their graph.

UMich

“After lifting for the third consecutive month, sentiment is now 17 index points above the all-time low from June 2022 but remains almost 20 points below its historical average,” said Survey Director Joanne Hsu.

Long-run inflation expectations remained firmly anchored at 2.9 percent for the third straight month and stayed within the narrow 2.9-3.1 percent range for 18 of the last 19 months, per the U. Michigan study.

So much for Fed fears that higher inflation expectations may become imbedded and cause consumers to sustain the high inflation by shopping until they exhaust their savings.

More studies by Federal Reserve economists are showing the Fed’s unrealistic expectations to achieve a 2 percent inflation target, no matter the loss of jobs, economic growth, etc.

Progressive economist Robert Kuttner has just highlighted a Cleveland Fed study by its own staff economists that highlights the consequences of holding to a 2 percent inflation target.

The study, by Randal Verbrugge and Saeed Zaman of the Cleveland Fed, says Kuttner, found that, using the Fed’s own projections, inflation would still be at 2.75 percent by the end of 2025—moderate by historic standards—and reducing it all the way to 2.0 percent would require an unemployment rate of 7.4 percent, more than double the current rate.

Who doesn’t believe that would be disastrous at a time of geopolitical unrest, economic sanctions, and the Ukraine war?

Harlan Green © 2023

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

Healthy Economy Should Be Fed's Priority

 Financial FAQs

Calculated Risk

Just days before an election that may decide the future growth path of the U.S. economy, the Labor Department’s JOLTS report shows Americans still fully employed. It seems companies aren’t yet ready to shrink their payrolls in the face of high inflation and soaring interest rates.

This is a volatile mix—high inflation plus interest rates, vs. plentiful jobs—that may stir Americans to elect a political party in the midterm that wants to cut taxes and many government programs during a war and economy already depressed in many red states, when it is government spending that is keeping America and most developed countries solvent after suffering through the worst pandemic in 100 years.

“The number of job openings increased to 10.7 million on the last business day of September, the U.S. Bureau of Labor Statistics reported today. The number of hires edged down to 6.1 million, while total separations decreased to 5.7 million. Within separations, quits (4.1 million) changed little and layoffs and discharges (1.3 million) edged down.”

The fact that job openings are still almost double the 6.1 million job hires will, alas, probably not deter our Fed from continuing to boost interest rates another 0.75 points tomorrow after conclusion of the FOMC meeting.

By doing so, the Fed will send the wrong message to many Americans, because the investments needed to win the war in Ukraine and cool global warming are far more important priorities than continuing to fight an inflation rate that is already trending downward.

For instance, the Fed’s preferred PCE inflation index has dropped nearly one percent to 6.2 percent in three months, the core rate down to 5.1 percent without food and energy, whereas the Euro Zone just reported the inflation rate in their 19 countries has risen to 10.7 percent.

The European Commission reported annual inflation rates of 11.6 percent in Germany with its terror of inflation that came from the 1920s, 16.8 percent in the Netherlands, and even higher inflation in the Baltic countries and Russia.

So why such a preoccupation with inflation when so much of it is due to outside circumstances the Fed cannot control? Are we still looking in the rear-view mirror of 1970s stagflation, while trying to solve everyone else’s problems?

Psychologists say that people tend to focus on what’s right in front of them—fixing the pain of inflation now, rather than the future benefit of reducing global warming, or even a Ukraine free of the Russian yoke.

It’s sad to see that party politics in the upcoming election has made such a painful choice possible, and that autocrats such as Vladimir Putin are well aware of. He has increased the pain level caused by the food and energy shortages to such a level with his war in the Ukraine that it may convince enough Americans to vote for a party that will opt to reduce support of this war and what it takes to reduce global warming.

So, I was wrong to say last week that draconian choices might be avoided. Plentiful jobs are a necessity to weather the upcoming storms. We may have to tolerate a moderately higher inflation rate in order to maintain near full employment until the storms have passed.

But how to convince voters to conquer their inflation fears for the better good in the upcoming midterm elections?

Harlan Green © 2022

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