US Jobs, Wages and Inflation Defy Speculators Again

Day after day the speculators/ruling class, their media, political representatives and central bankers have pumped out the narrative that the world is going to hell in a hand cart, with stories of impending, if not already existing, conditions of recession, and woe. As I posted recently, Britain's new Prime Minister, Rishi Rich, himself from within that world of financial speculation, and put in place by the global ruling class of speculators, as they unceremoniously removed Truss, claimed that Britain was facing a profound economic crisis, and that message was repeated by Bank of England Governor, Andrew Bailey, who foretold of an income squeeze greater than the 1970's (this is not the 1970's, or 80's), and a recession lasting 2 years. The trouble is the data continues to contradict their predictions, the latest US data being a case in point.

Earlier in the week, ADP Household jobs data indicated that the US private sector had created 239,000 jobs in October, as against estimates of just 195,000. It was the most in three months, during a year when job creation, month after month, has exceeded expectations. As I have set out in previous posts, this comes at a time when those sectors of the economy that expanded rapidly during lockdowns have actually seen a reversal. Technology companies have seen a reversal as lockdowns ended, and some of them have shed jobs or announced plans to do so, as also with associated jobs in warehousing. Yet, despite that, employment continues to grow rapidly, as lockdowns have ended, as consumers now go out to do all those things they were prevented from doing during that two year lockdown.

US Quit Rate Continues To Rise

And, although the job cuts in technology companies have been well publicised, the reality is that, not only is job creation continuing to increase, but the number of workers being laid off is also staying historically low. The weekly jobless claims gave the speculators hope back in the Summer, when they rose to around 260,000, but that figure is only about half what it is when the US economy is actually going into recession. Moreover, rather than rising from that figure, in the intervening months it has declined, now averaging around 215,000. Continuing jobless claims rose, but only marginally to 1.49 million, indicating that, other than for those hard to employ, many workers are unemployed only for relatively short periods, before obtaining new employment, a fact that is also indicated by the Quit Rate, which indicates the proportion of workers voluntarily leaving their job, in order to get better paid work in another job.

The speculators had also hoped that some salvation might come to them from a fall in Job Openings, meaning that firms were slowing down the number of new jobs created, as they filled existing openings. Again, they were disappointed. The number of job openings in the so called JOLTS data, rose by 437,000 from 10.2 million to 10.72 million. The problem that US companies are facing is that they cannot find enough workers to fill the jobs on offer, with job vacancies numbering twice as many as the number of unemployed workers available to fill them. On the basis of this data from earlier in the week, the figure I had in my head for, yesterday's Non-Farm Payrolls, was between 250,000 – 265,000, as against the official estimates of around 195,000. The actual number came in at 261,000, and also showed that a further 300,000 jobs actually existed that had not been previously accounted for.

Some solace for the speculators, for whom good news is bad news, appeared to come from the rise in the unemployment rate from 3.5% to 3.7%, and from the fact that hourly wages rose by just 4.7%, as against a previous reading of 5%, and inflation of 8.2%. However, further inspection shows this not to be the case either. Taking wages first, as I have set out before, at this stage of the cycle, the change in hourly wages is a poor indicator. It is always the case that, to begin with, the rise in wages takes the form of more workers being employed, part-time workers becoming full-time, and so on. Moreover, firms pay more to retain and attract workers by other means than increased hourly wage rates, which come along later. So, a look at average earning shows that wages increased by 8.2% as against the same month last year.

The increases have been biggest for those lower paid, unskilled workers, who are the ones most able to move to other jobs, and its also those lower paid workers who spend a larger proportion of their wages, adding to aggregate demand. Another bit of data in that regard is that, the average increase in wages for workers who have moved from one job to another is around 14%.

In terms of the rise in the unemployment rate, that is a result of the fact that the participation rate fell from from 62.3% to 62.2%, as employers are still failing to attract older workers back into the workforce. The reason for that is fairly obvious. In the 1990's, many of the people I worked with, took early retirement on the basis of voluntary redundancy, as the Council implemented job cuts. Depending on what their job had been, and how many years service they had, it provided them with a pension of between £5,000 - £10,000 a year (I'm not including in this the Chief Officers who managed to get pensions of more like £20,000 a year, and total lump-sum packages running to more than £100,000 - £250,000). Many, even on the lower sums were able to use them as a base income, taking on part-time jobs a few hours a week in B&Q etc., to top it up. There is no great need to take up full-time employment in such conditions.

In 1979, my dad was made redundant, when he was 59. It was the first time he'd been out of work since leaving school at 14, at the height of the 1930's Depression, in 1933. A decade later, having been offered the chance to register as retired, rather than unemployed (part of the 20 odd changes introduced by Thatcher to massage the unemployment figures), he told me it had been the best time of his life, as he spent his time, even with just his state pension and benefits to live on, going dancing in the afternoon, or playing bowls. If he had known then that just a couple of years later he would die suddenly and prematurely from an aneurysm, I'm sure he would have thought that true all the more. Similarly, many retired workers having experienced lockdown, and seeing that it was almost exclusively older people that died from COVID, will be similarly motivated to make the most of their available time, rather than wanting to be drawn back into employment.

The speculators and their representatives persist in this narrative of impending recession, because they need it, in order to try to dampen the demand for labour, and the ability of workers to obtain higher wages, squeezing profits, and causing interest rates to rise, which then causes asset prices to crash. Opportunists on the Left join in the chorus, because they see it as in their short-term interests to point to such crisis to attack governments, or to sustain their view of capitalism as being in some kind of permanent crisis, or death agony. Yet, as I pointed out recently, the GDP data is not an indication of falling output, but of rising prices for constant capital causing a tie-up of capital, and, despite all of the hindrances put in its way, the reality is that, the latest data shows even GDP continuing to rise. More importantly, even in the UK, whose economy has been seriously damaged by Brexit, and by the idiotic policies introduced by the Brexitories in Truss/Kwarteng's fantasy budget, employment continues to rise. The same is true of the Eurozone for employment and GDP.

That is despite the fact that the EU, in particular, has been hit by the self-flagellation resulting from its support for NATO's sanctions, and imposition of boycotts of Russian oil and gas, which has caused its energy prices to rocket. If that action was reversed, then, the EU would be set for stronger growth and lower energy and food prices, especially as China also ends its zero-Covid policy, and opens its economy in the coming months. Yet, the experience of the last week, in relation to rumours of China's reopening emphasises exactly why the speculators have wanted a recession, in their mindset of good news is bad news. Just the rumour of China reopening sent the price of oil up by around 4% on the day, and the price of iron ore and other basic materials were not far behind. That is because, a reopening would mean a sharp increase in global demand for basic resources.

But, that would also mean that the countries supplying them would also see a spur to their economies and employment, in conditions where labour is scarce globally, and increases in global material prices flow through into all economies, creating a further tie-up of capital, and fall in the annual average rate of profit, which, at a time when global demand is rising, as a result of increasing wages, results in rising interest rates, and falling asset prices.

That is what the speculators/ruling class, and their states have been doing all in their power to avoid. The relief rally in Chinese stock markets might seem to contradict that, but it is merely a case of buy on the rumour sell on the fact. The speculators on the Chinese stock market gamble that, as Chinese companies increase production, their profits will rise, which, no doubt, they will. But, it will not take long for them to also see, as speculators in the US have seen, that it also means that wages rise, and although the mass of profit rises, the rate of profit starts to get squeezed. Moreover, the benefit of higher profits for shares is outweighed by rising interest rates, which causes all asset prices to fall. One manifestation of that is that companies, instead of buying back shares – boosting their price, and also causing earnings per share to look higher – they have to issue new shares, so as to raise money-capital, causing share prices to fall, and earnings per share also to fall.

In the US, Elizabeth Warren, and other Democrat Senators have written to Federal Reserve Chair Powell, noting that its policy of raising rates could lead to a recession in which millions of US workers would lose their jobs. They note that the reason given for doing this is to slow the US economy, in order to reduce inflation. Other enemies of the working-class like Larry Summers have been open in saying that the number of unemployed US workers needs to rise by 50%, from its current level of 3.7% to over 5%, in order to reduce inflation. Warren is right to question this policy. The rise in inflation is in no way the fault of workers, whose hourly wages continue to lag the rise in prices. Yet, it is workers that are being told they must again be the ones who suffer.

What is more, and yet Warren does not understand this, when she asks whether the pain would be worth it, such a policy would not reduce inflation, as I have set out elsewhere. The cause of the inflation is the vast amount of excess liquidity created by central banks, the Federal Reserve leading the pack, over the last 30 years, and particularly in more recent years, including during lockdowns, when vast amounts of paper tokens were printed and handed out to households in the pretence that they were money.

If central banks wanted to curtail inflation they would reverse that, by reducing the amount of liquidity in circulation, not by raising their policy rates in a vain hope of inducing an economic slowdown that would, in any case, only result in stagflation, not a fall in inflation. They do not want to do that, even as they proclaim QT, as seen by the Bank of England stepping in with additional QE to address the crisis in the pensions market, because, they still hold out the hope that the current state will pass, and service as normal – of the last 30 years – will be resumed, and all of that liquidity will again flow back into boosting asset prices, the form of wealth of the ruling class.

The hope is forlorn, because material conditions have changed.  Labour is scarce, workers are on the front foot as they were in similar conditions in the 1950's and 60's.  This is not the 1970's, or 80's, and certainly not the 90's.  Capital must accumulate as competition forces it to do so.  Nominal interest rates of even 5% are not going to get consumers to save rather than spend, when inflation is in double digits, and nor is it going to stop firms borrowing to finance capital accumulation.  So, even the idea that higher rates will cause a recession is wrong.  Workers will simply demand higher wages, and spend them, and firms will expand to meet the higher demand.  Its already happening.  Rates will reach a level whereby asset prices crash long before they reach a level that would induce recession.