Last month, the US labour market upset the speculators and catastrophists by showing that the economy had created 528,000 new jobs, as against predictions of only 300,000. This month, its done it again. The average prediction was 298,000, with estimates as low as 75,000, but the actual figure came in at 315,000. That is not the whole story.
This month, the BLS that produces the figures went back to an earlier method of compiling the figures to deal with seasonal adjustments. It was estimated that this would be likely to produce a lower seasonally adjusted number than would be the case using the previous method. The fact that that is likely to have been the case, is shown by the fact that its normal for the July (last month's) number to be revised up, this month, but was actually revised down, though only by 2,000 to 526,000.
The BLS has also earlier said that it knows that the actual number of jobs in th economy is around half a million higher than indicated, but has not yet allocated these additional jobs on a monthly basis. It will do that in January. What is clear either way, is that the US economy is clearly continuing to create large numbers of new jobs, as firms continue to need to hire workers to deal with continuing rises in demand for goods, and services, and that latter fact is also apparent in the actual results being declared by companies. Certainly, as described before, some companies are faring not so well, but overall, the economy continues to expand, despite what the GDP data might suggest.
Job creation appears to have been spread across most sectors of the economy. There is also evidence that rising wages are leading to some of those workers that had left the labour market coming back into it. The participation rate rose from 62.1% to 62.4%, and accounts for the fact that, although the number of jobs rose, the unemployment rate also rose from 3.5% to 3.7%. The rise in the number of jobs was about three times what is required to absorb the normal monthly increase in workers of around 90,000.
The rise in average hourly wages was 0.3%, with an increase over the last year of 5.2%. Other data has shown that in the last year, wages for the lower paid workers, has risen by around 7%. This is below the rise in prices, however, as set out previously, this is not the whole story, because of the payment of bonuses and other recruitment and retention payments, as well as the fact of many workers moving from unemployment or part-time employment to full-time employment. All of that means that the total amount of wages available to demand wage goods continues to rise significantly, which provides the basis for continued demand in the economy, which, in turn, is the basis for firms' continued need to employ additional workers, which, as labour becomes increasingly scarce, means that firms have to bid up wages further, either in directly higher hourly rates, or via larger recruitment and retention payments, bonuses and so on.
This continued strong employment data follows on from the lower number of unemployment claims for the last three weeks, again confounding the speculators and catastrophists who had been looking for the number of job losses to be rising, so as to affirm predictions of impending recession. The last jobless claims number came in at just 232,000, the third weekly decline. For comparison, the average number of jobless claims is 370,000, and in the crisis period of the early 1980's it averaged around 550,000. There is no sign that the US is anywhere near a recession, despite the prayers of speculators and catastrophists alike for one to appear.
The Federal Reserve is doing its best to try to engineer a recession, or at least a significant slow down, by focusing its attention on raising its policy rates rather than reducing the volume of liquidity in the economy, which is what it would do if it really wanted to reduce inflation. But, it is also hamstrung in raising rates, because if it does so too much it will provoke a crash in asset prices, which is what it is primarily focused on avoiding. It wants an economic slowdown, and even a recession, because that would reduce the pressure on wages, and thereby, profits, as well as reducing the demand for capital, and so reducing the pressure on rising interest rates, both of which are required to prevent asset prices crashing. However, with absolute levels of interest rates so low, whilst inflation and profit rates are so high, there is no way that its current rate hikes will slow either the demand for commodities, or demand for capital.
With wages rising, and consumers still flush with COVID cash, and with interest rates so low, in real terms, there is every incentive for consumers and businesses to continue spending, so as to avoid higher prices even in the near future, let alone a year from now. Moreover, despite the Fed's intentions, liquidity conditions have actually loosened, rather than tightened, illustrating this point that not only is their demand for bank credit, but there is supply of it too. On top of that, as described previously, in periods of economic expansion, a vast amount of additional liquidity comes automatically from the expansion of commercial credit between firms, completely independent from bank credit.
So, expect to see the US labour market remain strong. The continued ratio of job openings, which again came in strong on the last reading, to unemployed workers, illustrates its current strength. The next important data will be US CPI. Its currently expected that US CPI has peaked. That's possible, but probably unlikely. Inflation always comes in waves, and only the first wave has been seen. It has been flattered by falls in oil prices, resulting from increased supplies, reduced Chinese demand, and releases from strategic reserves, as Biden tried to rescue Democrats election prospects for the Autumn. But, if China is forced to drop its attempts to hold back its economy, by abandoning the Covid-zero nonsense, energy demand will rise quickly. The latest attempts to impose a price cap on Russian oil, will likely just result in lower global supply, and higher prices. But, as higher wages, across the globe, get fed into costs, and still lax liquidity enables firms to raise prices, this will feed into the next wave of inflation.
That may not come this month, though the headline number is likely to remain high, and the core number not change, whilst the trimmed mean may continue to rise, and Democrats might be lucky that it will not turn up again until after the mid-term elections, but the path of inflation is certainly not going to be in a secular downward direction, and certainly not at the pace that the Fed is suggesting.
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