Today's US CPI data shocked pundits, and is yet another sock in the gut for the greedy speculators. The figure came in at 9.1% compared with estimates of 8.8%, and 8.6% last month. Worse, the month on month figure was 1.2% compared with 1% the previous month, showing that what was supposed to be "transitory" inflation, is, in fact, still accelerating. Nor did the Core CPI data give any solace for the speculators. A high figure was always going to be blamed on higher food and energy prices, as NATO imperialism's economic war against Russia, has increased both of those categories. However, the Core inflation, which excludes them, also came in at 0.7%, as against expectations of 0.5%, after rises of 0.6% in the previous two months.
Projected forward a year, the headline figure suggests inflation a year from now of around 15%, with even the core rate suggesting a rate of around 8.5%. This is way in excess of the projections of the Federal Reserve for inflation to be falling sharply in coming months, which they require if they are to be able to justify slowing the interest rate rises that the speculators are demanding so that the crash in their asset prices can be ended.
As I wrote a few days ago, the greedy speculators are demanding a recession, in the hope it will cause wages and interest rates to fall, so that the prices of their assets will stop falling, and start rising again. They find an echo in the words of the catastrophists who are continually predicting the next recession, and talking about capitalism being in some kind of death agony, because on the Right, they believe that the capitalism we have is some form of Socialism, whereas on the Left they believe that rather than Socialism growing out of capitalist development, workers can only be persuaded to support their version of Socialism, if capitalism itself becomes intolerable! Both, continue to be disappointed in their hopes and expectations, by the data, which shows capitalism to be in rude health, despite attempts by conservatives and reactionaries to hold back its development.
On Friday, US non-farm payroll data showed that, in the previous month, it created 372,000 new jobs, as against estimates of only a 265,000 rise. The US workforce increases by around 90,000 per month, and so any increase in jobs above that level means that the additional demand for labour exceeds the additional supply, eating into any relative surplus population, and acting to put upward pressure on wages. The US now has more people in work than it has ever had in its history.
The data is compiled from two different sources. The establishment survey takes data from firms of the additional jobs they have created, whilst the household survey looks in each household at who is employed or unemployed, part-time or full-time and so on. The household survey also shows that the unemployment rate remained at 3.6%, or more or less full employment. It also shows that unemployment and full-time working is back to where it was prior to the imposition of lockdowns in 2020.
An indication of whether the economy is slowing or not comes not only from the number of new jobs being created, or the number of workers being laid off, but from the rate of hiring, and movements within the workforce. Generally speaking, employment operates on the basis of last in first out, and it is again generally the case that black and Hispanic workers are the last to be employed, and so first to be laid off. Changes in their unemployment levels are, then, a forward indicator of employment trends. However, for both blacks and Hispanics, the data shows that unemployment levels were, in fact, falling, compared with no change in the overall unemployment rate.
The data shows that private sector employment is now higher than it was before the imposition of lockdowns in 2020. That is despite the continued imposition of restrictions, and the issues caused as a result of the supply chain bottlenecks, workers being in the wrong place, of the wrong type, and so on. Indeed, the number of job vacancies continues to exceed the number of unemployed workers by a ratio of 2:1. A problem for firms in expanding production is an inability to simply obtain the additional workers they require. The number of people working part-time, for economic reasons, i.e. not out of choice, also fell by 707,000 taking it below the figure prior to the imposition of lockdowns in 2020.
I have also previously referred to the fact that, in many cases, as with the Los Angeles dockers, employers unable to find enough additional workers, have increased overtime, and overtime payments. Put all together, and including all the additional bonus, recruitment and retention payments and so on, this means that the amount of revenue going to wages, in the US economy, is increasing substantially, even without real hourly wage rates, yet, rising rapidly, and this means that substantial amounts of disposable income are being generated to go into aggregate demand for wage goods. With profits still high, and money profits expanding on the basis of this rising aggregate demand, and inflation, its hard to see how any economic slow down, let alone recession or slump is likely in the foreseeable future.
The payrolls data followed the release the previous day of new US unemployment claims for the week, which came in at 235,000 as against estimates of 230,000. That is slightly higher than recent figures, but, at any other time, this kind of figure would be consistent with an economic boom. Between 2004 and 2005, for example, the average was around 340,000. The average from 1967 to 2022 is 370,000, the lowest being 162,000 in November 1968, and the highest being 6 million in April 2020. Moreover, on the other side of the coin, the number of job openings (vacancies) provided by the JOLTS survey also showed continued strength in the labour market. The data showed 11.9 million vacancies, up from 11.7 million, and an average between 2000 and 2022 of just 4.9 million.
Another good indicator of the strength of the labour market is the Quit Rate. When the economy is strong and growing, workers feel firmer ground beneath their feet, and are more inclined to swap jobs. The chart shows that following the crash of 2000, and the economic slow down that followed it, and that caused by 9/11, the quit rate fell, but then as the US economy, began to grow again after 2003, the quit rate rose up to the crash of 2008. But, again from around 2009/10, it continued a long steady rise, only rudely interrupted by the imposition of lockdowns in 2020. But, its now at its highest levels in 20 years. The chart is a good proxy for the period of long wave expansion that has been going on, and its impact on employment during that period.
I have also recently commented on the fact that US Durable Goods and Producer Goods Orders came in strong, as against expectations that they would have weakened. This is an indication that consumers having compensated for many of those things they were prevented from buying during lockdowns, have now turned their attention to some of the larger items of expenditure, as well as shifting from consumption of goods, to consumption of services, and that businesses are now having to themselves, turn to accumulation of additional fixed capital. The first response of firms to an upsurge in demand for consumer goods and services, is to hire more workers, extend working hours, and buy additional materials and so on. Especially in conditions of labour shortages, the next resort is to buy additional machinery (fixed capital) to raise labour productivity, and in the current period that amounts to the kind of extensive accumulation, previously referred to in relation to this phase of the long wave cycle.
That is also consistent with the recent ISM data for manufacturing, as discussed recently. Although, the media presented the data as suggesting possible weakness, as I wrote, the chair of the committee, responsible for the survey, Tim Fiore, who has access to all of the background to the data, argued the opposite. He pointed to rising inventories being a result of firms in some sectors having over-ordered on the basis of high demand after lockdowns, supply bottlenecks requiring just in case rather than just in time methods, and difficulties in recruiting enough labour to process orders, and get them out of the door. He saw no reduction in lead times for orders, or any significant change in the current levels of labour shortages, and saw producer price inflation at year end still at around its current level of 11%.
This view of the economy was further confirmed by the ISM data for services, and the composite index. It came in at 55.3 as against forecasts of 54.3, and opposite to manufacturing saw inventory levels falling, with firms commenting that they were now too low, which suggests that they will need to be increased, and so giving a boost to economic activity in coming months. US Bonds that had seen yields falling in the previous few days, quickly reversed course, following the data, as the absence of the hoped for economic slowdown, means that wages will keep rising squeezing profits, and feeding through into increased demand, which in turn will force firms to expand further, putting more pressure on interest rates to rise, which will cause asset prices to continue to fall, and provide no excuse for the Fed to stop raising its policy rates, and tightening monetary policy.
This US economic strength has come despite the continued attempts of the Chinese Communist Party to hold back the Chinese economy, by its continued imposition of lockdowns, under the fig-leaf of its idiotic zero-Covid policy, as it struggles to prevent the Chinese economy from overheating, and causing all of its own asset price bubbles from exploding like a Chinese fireworks display, and so destroying the paper wealth of the Chinese ruling class. It has resulted in a further rise in the Dollar, dropping the Yen to levels that previously have led to intervention by the Japanese authorities, and which is now importing inflation into Japanese consumer prices. They are currently only just over 2%, but compared to having been negative for a long period, and considering how quickly inflation in the US, EU and UK went from less than 2% to double digits, something also seen in previous periods of high inflation, the vast oceans of money printing in Japan over the last 30 years, in response to its own asset price crashes of 1990, which saw prices fall by up to 90%, means that Japan, like China, could also be headed for a period of high inflation if not hyper inflation, as these money tokens escape the control of the authorities, and flood into the real economy.
The high dollar also leads to imported inflation for the EU and UK, and that comes on top of their own self-inflicted problems caused by Brexit in the case of Britain, and their role in the economic war against Russia and China, for both. Both face the prospect of recession, as a result of acting as dupe of US imperialism in that economic war, from which US imperialism is the overwhelming beneficiary. The US itself is looking to remove some of the trade restrictions placed on China under Trump, as the US sought to slow global economic growth in 2018, as it was, then, also, threatening to cause interest rates to rise, and asset prices had fallen by 20% on the back of those higher rates.
Biden is looking to remove those restrictions, because a) he wants a token to China to try to prevent it from giving Russia further support over Ukraine, but also, because Chinese manufacturing supplies the US with large amounts of cheap goods, and preventing their import, or making them more expensive, has contributed to rising US inflation. Biden needs to reduce it, to have any hope of the Democrats not going down in flames in the mid-term elections, which now looks a forlorn hope.
But, its in the EU and UK where the real damage is being self-inflicted, and might even result in a recession, or worse. Both have set out to reduce their imports of Russian oil, as part of the economic war that has been going on for more than a decade, and which they have done under cover of sanctions over Ukraine. As I set out recently, the consequence of that is that they had to look for alternative supplies to Urals crude, and could only find it in the US. That meant they had to pay much more for that oil than they had done from Russia. As Ed Morse pointed out, the result was then that US suppliers diverted oil from the US market to Europe, when they could get these much higher prices, which in turn led to a reduction of supply to the US market, pushing US prices to record levels, which has, in turn, fed through into US inflation.
Its why the US and its NATO allies are now trying to put a limit on the price that Russia can get for its oil, an idea that cannot possibly work, because Russia, on the back of these much higher prices, is able to sell its oil to China, India and elsewhere, even at a discount, at prices much higher than before the attempts to boycott it. That is why Russian oil revenues have risen, and the Rouble has strengthened considerably against the Dollar. Any attempt to put a price cap on that oil will simply result in Russia selling more of it to China and anyone else who will ignore it, and taking other supplies off the market, causing global oil prices to rise even higher, in the knowledge that neither the US nor OPEC can compensate for the reduction in supply, let alone what will happen when China reopens, and demand surges once more.
The other aspect of that economic war is the exclusion of Russia from the global payments system SWIFT, and which has limited Russian exports, thereby, of grain, fertiliser and so on, which has not only caused global food prices to rise sharply, as Russia is the world's largest exporter of grain, but has also led to global food shortages and famines in parts of the globe. The higher food and energy prices for consumers in the US and Europe, is one hope of the speculators in bringing about an economic slowdown they require to prevent wages rising, profits being squeezed, interest rates rising, and asset prices crashing. They anticipate that as consumers have to divert a large part of their earnings to such spending, they will have little left to spend on other things, so causing a general fall in demand, and so limiting economic growth. But, that depends on workers not getting higher wages to compensate, and unlike the last 40 years, that is not happening.
Labour shortages means that as firms have responded to increased demand, they have had to pay higher wages get workers, or face losing market share. With no big new technological changes available to replace labour with machines, only a further roll out of existing technologies is possible, which also requires additional workers to operate it. Productivity at best fails to rise much, and at worst falls. And, most of the benefits of globalisation in raising productivity has also been obtained for now, and with just in case replacing just in time, and continued frictions from lockdowns, Brexit, and the economic war against Russia and China in place, the chances of raising productivity further as a means of replacing labour are severely limited.
That puts the working-class in the best position it has had for 50-60 years, and is why we are not only seeing the rise in the Quit Rate in the US, and elsewhere, but also rising wages, and a much increased willingness of workers, across the globe, to engage in industrial action for higher wages and better conditions. Already, its being seen that, as in the late 1950's, and into the 1960's, workers are able to win those battles with just short strikes, and that is also encouraging other workers to follow suit, as well as many more workers to join trades unions, as again happened in the 1950's and 60's. As, then, this strength gives ordinary workers the ability to by pass the staid, union bureaucrats, whose role is to try to keep such struggles within bounds acceptable to capitalism, and whose ideological and political manifestation is the Labour Party, and its equivalents.
Britain suffers a double whammy, because it is part of this NATO economic war against Russia and China, and so is suffering from the much higher prices for oil and gas, as well as for food and other primary products, but it has also imposed on itself the massive damage of Brexit, which will be further compounded following the removal of Johnson, who, at each turn, had capitulated to the EU, and who is likely to be replaced by something even worse, as the Tory Right seek to impose a truly reactionary Leader, who will be forced to drive further down the road of reactionary nationalism and populism, followed close behind by Starmer and Blue Labour, and whose manifestation will be an attempt to initiate conflict with the EU over the NI Protocol, as a means of rallying “the people” around the flag, as Britain's politicians and parties descend at an accelerating pace into the sewer of jingoism.
Yet, even with the constraints of Britain's role in Nato's economic war against Russia, and of Brexit, and despite continued limitations from the aftermath of lockdowns, the UK economy too is showing resilience. GDP grew by 0.5% in May, month on month. Projected forward, that is an annual increase of more than 6%. Predictions had been for GDP to be flat.
Germany has already put on hold Nordstream 2 under duress from US imperialism, and with Russia responding to NATO sanctions in relation to exclusion from global payments systems, by demanding payment for its oil and gas in Roubles, EU countries are seeing their supplies of Russian gas disappear, as they try to hold out against conceding to those demands. Even, now, in Summer, Germany, Italy and other European countries are suffering from those higher gas prices, as they try to rebuild their stocks ready for Winter, and that has hit German and other EU manufacturers. But, in the EU, as across the globe, workers are feeling the firmer ground beneath their feet, and demanding higher wages too, to compensate for these higher prices. Another manifestation of that is going to be a rejection of the idea that EU workers should pay the cost of NATO imperialism's war against Russia and China, by seeing a reduction in gas supplies cause their factories to be closed down, let alone that their homes fail to get heated.
Yet, even with all of these self-imposed headwinds to growth, even in the Eurozone, the PMI indicators continue to be above 50, and so indicating growth, not recession ahead. With Russia rapidly consolidating its control over the Donbas, and so creating the conditions for a new modus vivendi, as happened in Georgia, after it took control of Abkhazia and South Ossetia, and indeed, as happened when it annexed Crimea, the pressure will be on Zelensky to end the war, and do a deal. EU governments will come under increasing pressure from workers to bring that about rather than see their firms close, and their homes go unheated. Biden too may even be under pressure for such a solution, in order to get US energy prices down, as his attempts to suck up to the Saudi butchers fail to achieve that goal.
Indeed, as the US CPI data has now indicated, even on the basis of the official figures US inflation continues to surge forward on the basis of its strong economy, and labour market. The CPI data, released today, shows US inflation running at 9.1%, but, as I have set out before, the real figure is much higher than that for workers. And, taking the rising month on month figure, it looks set to reach around 15% a year from now, with Producer prices already rising by 11% p.a.
The speculators, the conservative politicians, and the media that conveys the hopes of the speculators, continue to think that workers will not, indeed cannot increase their wages to compensate for the higher prices, and they implore them not to try to do so, knowing that if they do that will squeeze profits unless central banks print even more money tokens to enable firms to raise prices even further, creating a price-wage spiral, and that, in response to that rising inflation caused by that additional liquidity, those same central banks will have to also respond by raising their policy rates further, so as to be seen to be tackling the inflation they continue to create, and in response to the fact that, as the economy continues to expand, and the demand for capital rises, market rates of interest themselves rise, whatever central banks do, and that its manifestation will be rapidly collapsing asset prices.
At the same time, Chinese workers will have the potential of forcing the Chinese Stalinists to abandon their increasingly ridiculous zero-Covid strategy, leading to a sharp rise in Chinese economic activity, spreading out in huge tidal waves into the global economy. The levees are breached, the holes in the dykes are now too many to be filled with additional fingers and thumbs, the moles are popping up everywhere to such an extent they cannot be whacked by the mallets, no matter how fast the response. The genie is out of the bottle. Whatever the metaphor you choose, the gig is up for the speculators.
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