US adds a solid 253,000 jobs despite Fed's rate hikes
apnews.com
apnews.com
Interest rates seem most directly tied to easy/hard money, but in the current economy that doesn’t appear to have the same secondary correlation to workforce demand that might usually have been common in the past.
However I should note that the linked article doesn’t give a ton of detail on the sector & quality (pay scale) of jobs where there is growth, and that is a big consideration. Shrinking inventory of high paying (tech) jobs would be harder to makeup for if the increases are coming from lower paying $40k-$50k/year jobs.
Like another comment mentioned housing starts have fallen off, but there's still work on ones already being built.
The bad businesses/investments that have been propped up by zero interest rate financing also will need to hit their loan maturity dates for them to adjust upwards.
It is normally 6-12 months after the Fed stops raising rates that there's a recession.
And the big recovery from covid right now is hospitality.
Is that happening overall?
I know some high profile tech companies have done large layoffs but I suspect most of tech is not them.
Based on this, almost 200K tech workers out in 2023 alone with additional 160K gone in 2022. That is a lot of jobs. I'll caveat with saying these are not all in the US and that as a % of the total workforce, tech is not that large so impact on this unemployment number is low. Just pointing out the tech sector is by the numbers/facts available definitely cooling.
Regardless, it’s a decentralized system and inherently complicated. I’m even feeling a little impressed with its resilience shown here.
My experience is that the parts of construction which typically happen at the beginning of a job (things like financing, land acquisition, architecture, demolition / asbestos removal) are hunting for work, while trades which typically happen at the end (plumbing/electrical/HVAC) are still booked full-up and nearly impossible to get at reasonable prices. This is all consistent with the construction pipeline having dried up, but most of the individual trades having a solid backlog as existing projects complete.
If your KPI is "number of jobs" then keep the minimum wage so low that countless people need two or three of them.
Prepare to be disappointed. They are openly trying to raise it in order to lower "inflation".
How long will they need to hold interest rates at 5%+ before we see a raise in unemployment?
The US’ economy is not as capital intensive as other economies past.
I don't know. New + used car sales as well as new 15/30 year mortgages (or what would typically be refinances maybe) have to have some effect.
A car salesman closes less deals, he has less money to go on vacation with, etc. etc.
Lots of companies still filling back orders and latent demand from the last three years
When unemployment is low companies are reluctant to lose staff for fear of not being able to rehire when needed
The housing market hasn’t slowed much which is a huge employer
Pent up demand for travel and services is still strong
It's going to be really tough to do that if they can't create some unemployment over here.
The Fed rate doesn't directly affect employment - at best it may encourage some larger businesses to postpone hiring, but most companies (outside tech, which a.) has some very good macroeconomists b.) intends to survive and c.) is unusually sensitive to cost of capital) aren't going to lay off people until their bottom line takes a hit that puts their survival in question. Smaller profitable companies aren't directly exposed to the cost of capital at all, because they fund operations out of cash flow.
The way interest hikes combat inflation is that they make certain lines of business unprofitable, which makes companies either voluntarily shutter them or go out of business for being unprofitable, which frees up the workers involved in those businesses to compete for core, need-to-have industries like food and logistics, which holds down wages. This is happening in tech, but it hasn't filtered down into the broader economy. And it needs to - even if you lay off everyone who "learned to code" in the last 10 years and force them back to working retail, there are still way more job openings than workers.
We'll see unemployment go up when we see major Fortune 500 companies go bankrupt, and we'll see inflation drop sustainably when people are on bread lines.
The money injected into the system was created 2, 3, and 4 years ago. It takes a few years for the effects of multi million dollar financing to show.
They are absolutely not “trying to raise unemployment”. They are trying to control inflation and the expectation is that they will eventually have to stop raising interest rates (or lower them) because unemployment increases too much before they hit their inflation target.
Their main lever is interest rates. Interest rate increases do not necessarily increase unemployment. Now that unemployment is low enough, their priority is inflation, and for that they will raise interest rates. If higher unemployment is a side effect that leads to 2% inflation, then their mandate is still achieved. But rest assured, if inflation comes down to 2% with unemployment flat or improved, it's all the better according to them. Their intention is not "more unemployment -> less inflation", it's just "less inflation," by any means necessary. They will accept causing higher unemployment to achieve 2% inflation because it's a balancing act between their two goals.
"Powell said he hoped that a slackening of demand might reduce pressure in the labor market without raising unemployment."[0]
[0]https://www.bloomberg.com/opinion/articles/2022-07-29/higher...
The critical difference that you are missing is that if inflation stops before employment declines, they will stop raising rates.
No, the Fed is trying to lower aggregate consumer demand to rein in the growth in consumer prices. If it could acheive that entirely by adversely impacting availability and cost of credit while unemployment kept dropping, that would be ideal, given the other side of its dual mandate.
It accepts as a natural consequence that unemployment will likely need to go up to acheive its goals on inflation, but raising unemployment is not a goal.
It would be ideal. But it is not achievable. So raising unemployment is a short term goal to achieve the broader goal of stability.
There is a difference between an accepted cost and a goal.
I wish I could find the interview, but at one point someone brought up the question of wages going up and he basically said "Don't stress we'll get that under control soon"
"That" basically meaning poor people.
As an extreme example, if the minimum wage went to $100/hr, inflation would skyrocket because demand for goods would skyrocket which would send prices for just about everything to the moon.
A metric that matters a lot more is purchasing power. It's better to make $10/hr if a dozen eggs cost $2 (20% of your hourly wage), compared to making $20/hr with a dozen eggs costing $6 (30% of your hourly wage).
In other words, if people get paid more, demand stays the same (or increases) which is counterproductive to lowering inflation.
Hey entry level worker. 2 years ago we (company) would have paid you $12/hr. Now you have made it (by not applying for our open positions we need filled/quitting over time) that you refuse to work for less than $14/hr. That's a 16% increase in our payroll. That's fine! We'll just charge 16% more for our product and the entire thing will be "put off" by the customer who will front the bill. Our bottom line is unaffected and the entire thing is a passthrough for us.
He has suggested that wage decreases are potentially one of the paths between rate increases and reduced inflation which is just an observation of basic facts of economics.
Do you want him to pretend he doesn’t understand how the main monetary policy lever available to the Fed impacts the things that the Fed is responsible for targetting?
Our current job boom has little with minimum wage allowing for lots of low productivity workers and more to do with a demographic shift, baby boomers are retiring and dying off, the demographic pyramid is imbalanced.
For most jobs you simply can't get someone to do the work for that rate.
Is anyone looking into that idea?
Also how weird that we de facto ended minimum wage with no discussions. Just let it happen. Strange things happen when laws don’t account for inflation.
Let me rephrase my original comment: a person who hasn't been earning anything and made a *rational decision* to earn something is in a better position than he was before.
I honestly don't think that significant portion of these new jobs are filled with people who decided to be disqualified from social services to earn less money that they have been receiving before.
I haven’t looked at the data recently but I would bet small money that you’re incorrect. I’m thinking of people near retirement age specifically.
You should reflect on why you feel this way despite the facts painting a very different picture.
$7.25 in March 2023 has the equivalent purchasing power as $6.05 in January 2019.
Even in Vicksburg Mississippi, where I lived for a bit as a kid, a poor place, although not Yazoo poor, McDonalds is starting at $11/hour now.
Yes, if you start with a dumb premise, you come to a meaningless conclusion.
And for the record, the year over year growth should indicate that it's not the negative economic signal OP implied it was, since the economy was otherwise weaker during the bottom of the metric!
It may be that the lack of a minimum wage in a situation of labor scarcity empowers workers. When there is a mandated minimum wage, a business can pay that, because it's an easy decision. But when there is no minimum wage, businesses have to work harder to determine an appropriate pay level. They have to conduct market research, hire consultants, study their competitors, and make a decision.
I'm not endorsing the practice - it will get you fired if one of your employers find out (although maybe its practitioners don't care, they'll just get another 10 jobs) - and it's pretty ridiculous that it exists. But it's sort of the logical outgrowth of late-stage capitalism where the only thing that matters is securing the transaction that puts money in your bank account and actually doing the job that you promised to do is secondary.
I am still trying to make some sense of all this.
One could argue that several recessions should have already happened ( and recent bank collapse was a signal of one such event ), but were merely held back by government rescue/bailout ( depending on your perception of things ).
edit: Oh yeah, and old guard trying reintroduce working in office by decree. It all does not really add up.
Economics is a pseudoscience, after all. In fact, it's probably just an extension of psychology. Nobody really knows what makes the economy tick, but one thing that can somewhat measure the economy's general strength is the M2 Velocity chart. If the velocity of money is high, it means lots of different people are out spending money and keeping money in quick circulation as opposed to hoarding it.
This is true to the extent (and only to the extent) that behaviorism eventually managed to poke a little bit into economics, which had been dominated by the ivory tower rational actor model detached from empiricism before and longer than any of the other social sciences.
There are Serious People out there too, real economists who have been studying this stuff for whole careers. And quite frankly they haven't been saying any of this stuff. I think it's great that people (especially the GP) seem willing to reevaluate their priors. But maybe while you do that you could nod to the expertise of those "elites" you've been trying to ignore?
Related to that is the current level of crazy, which seems higher than what I normally observe. Only a year or so ago I ascribed it to people slowly moving back to the office, but it seems more lasting than expected ( crazy driving mode, less patience, more curt behavior and so on ).
And it seems that some of the previously fringe interests became mainstream in a weird way ( including memes among others, and how they weirdly can predict -- or cause -- events ), which only seems to further destabilize current society.
Note that all of these are not really economic changes. Something else else shifted apart from the usual stories about politicians being politicians.
I wish I knew more of the truth/could make sense of the sea of stats/data out there on the topic of:
break down America's population by their wealth/income. anybody who isn't in debt and makes a decent income, we don't have to "worry" about
you see headlines that a lot of people are struggling, living paycheck to paycheck, in debt, housing is broken compared to 40 years ago and an entire generation on average can't afford to buy an average house on their average income
but then we have another group of people, not billionaires or $10-$100m, just like "average" rich people who have so much money it's affecting the entire system with high demand for tangible goods?
I personally can't make sense of it. I know both can be true, but I see it as a balance/see-saw in my mind. I know America doesn't work for everybody, etc. etc. I'm talking purely from a "how healthy is the economy right now" perspective. How is that we have what feels like polar opposite narratives constantly being mentioned (tons of poor people suffering/unable to get by + shrinking middle class versus too strong of a labor market and almost too much demand.
Is this all really just "appropriate response" to the fiscal/monetary policy done by the US government + federal reserve during covid?
I got this information from the Credit Suisse Global Wealth report - hopefully it’s reliable information despite that fact.
https://www.credit-suisse.com/media/assets/corporate/docs/ab...
Checking it now, will update this comment with "how big is the American millionaire class"
https://www.zippia.com/advice/millionaire-statistics/#:~:tex....
> Looks like there’s about 25 million millionaires in the States in 2021. Collectively, they can spend a hell of a lot of money.
I feel like people who scrape in and are "technically worth" $1m or $2m on paper (most likely due to single family home ownership appreciation over time) but still need to work a job/support a family probably shouldn't count but other than that... it sounds like you and I are in alignment that of the ~160m working "taxpayers", 15% of them are millionaires who are basically unaffected by any recessionary downturns at the moment and are still out there spending like crazy? (like $20k Formula 1 Miami or $12k Warriors courtside tickets)
In an inflationary market it makes a lot of sense to buy today what you can't afford tomorrow.
Why is it surprising? As long as you believe that your job is secure, if you believe higher inflation is coming then buying things now may be a good solution.
I recall in 2008 discussing this divide a lot. Finance recovered, but normal people never did. Whereas both sides used to be codependent, the stock market rose in ‘09 when folks still didn’t have jobs.
I wonder if we’re bringing things back in line now. Inflation IS declining, the last MoM report notwithstanding, even as we’re adding net jobs.
Perhaps I’m a bit optimistic. But could we finally be actually recovering from ‘08?
This seems like a bad statement to make without any comment on what’s happening to wages. Are wages rising?
But this assumes there isn’t excess production capacity. If supply is elastic then demand increasing makes supply increase, which creates investment and expansion, leading to a virtuous cycle.
Parallel to the story here is that supply chains have normalized to about 2019 levels of backlog. We aren’t seeing mass production stoppage due to outbreaks. We have an enormously elastic just in time economy so long as the parts are functioning - and they are.
The fed is managing things with a playbook from 45+ years ago. It’s not been updated for the modern globalized just in time economy with enormous ability to scale to almost any amount of demand. It’s not the 1970’s, which is the last time we tried to manage inflation. But the Fed still dances to disco and wears bell bottoms, so they must strangle wage growth and full employment to make sure people save 5% on a bag of Doritos.
A one-time "this is your fee for us allowing you to exist and your business to thrive despite you putting a ton of burden on tax payers through tax credit abuse, creative accounting, lobbying, etc..." tax for the 10-20 wealthiest people (or families) would be one of the most deflationary events in the history of this country.
You take 30% of Bezos' net worth away and he'd still have enough to buy the entire NFL....which would probably increase his net worth (and still have a few billion to screw around with). Take 30% of the Walton's collective net worth away and they wouldn't blink an eye. Take 30% of Musk's net worth away and he could still afford to piss away 20, 30, 40, 50 billion on some vanity project and still be one of the top 10 wealthiest people on the planet.
Such a tax would be the biggest shot in the arm to the US (and world) economy in a very long time. It would also be extremely deflationary because it would spike the M2 Velocity chart to unseen highs, which is generally an indicator of middle and lower class economic activity.
It's insane that we have people that are worth hundreds of billions of dollars and we don't tell them "we created this system that allowed you to attain astronomical wealth, and we maintain that system....you should consider that when it comes to tax season, rather than hiring an army of lawyers to avoid paying tax". THEY are the cause of inflation, because there's absolutely fuck all reason to just hoard billions when we have inflation and massive income inequality.
Taxing the uber-wealthy is actually deflationary, not inflationary. Taking away their ability to hoard unimaginable amounts of money actually helps the economy tremendously. The money that sat around in Jeff's or Elon's bank account doing nothing but accruing interest actually flows back into the economy, reducing the need government's need to print more money.
How, and why? People still need money, the economy still needs money, the business cycle and the real world still need to continue. Even if one person takes an outsized percentage the money supply, the underlying conditions that allows everyone else to participate in the overall economy remain unchanged except for one critical point. The only change is that because one person has so much money that they've effectively skewed the velocity of an average (currency of your choice), the government has no choice but to step in and print more money.
This might be in reference to during the pandemic, nobody really wanted to work (labor shortage), so employers had to offer incentives and above-average (for them) wages in order to entice people to work.
I know in some minds we might think "good, higher wages for entry level workers"
The only problem is, as you know, that money has to come from somewhere. Cut a cost somewhere, raise a price to a customer somewhere, or the owners make less money. The third one doesn't really happen/isn't worth the risk of owning a business at that point, right?
In other words, people make more money in robust job markets and can spend more money on goods and services.
Since the US Debt to GDP ratio is so high now, rate hikes are creating a higher deficit spending from the government into the economy (bondholders) which can be more than enough to counteract the contractive effect of rate hikes.
[edit: US govt maintains wage data and it should be simple to characterize the average & median values for compensation for the 'new jobs created': https://www.bls.gov/oes/current/oes_nat.htm ]
Also, > "But the jobless rate fell in part because 43,000 people left the labor force, the first drop since November, and were no longer counted as unemployed."
What kind of nonsense statistic is an unemployment rate that doesn't count this fraction? It's not like those people still don't need a place to live and food to eat even if they can't find a job after six months of looking.
Finally, >"The central bank has expressed concern that a robust job market exerts upward pressure on wages — and prices."
Translation: workers get a larger fraction of the profits created by their labor if job markets are tight, putting downward pressure on executive bonuses and shareholder dividends, and we can't have that! Everything must go to the rich, since the most important measure of societal success is the billionaire count.
Or just expand to any retirees not just those who do it early.
Retirees left the labor force and should not be counted as unemployed.
Immigrants on a visa that had to return to their countries after being fired left the labor force and should not be counted as unemployed.
Someone that was arrested left the labor force and should not be counted as unemployed.
Just a few examples.
"leave the labor force for good" can be legitimate - think someone on a longer sabbatical, going FIRE (financially independent / retire early), going to an extended stay in prison or becoming a permanent stay-at-home parent.
Like the inflation rate, unemployment statistics are more bread and circuses than useful information. They're designed to help the people in power remain in power, not to provide guidance for practical governing.