According to the Bureau of Labor Statistics (BLS), there were 151k, 000 net
new jobs created in the month of January, and the unemployment rate fell to
4.9%. The continuing increase in new job creation and removal of slack in the
labor market is causing the Phillips-curve-obsessed Fed to maintain a tightening
stance on monetary policy.
However, not only is Ms. Yellen and company wrong about the progenitor of
inflation, the Fed is also obsessing about job growth that isn't real. According
to that same BLS, in December of 2015 thru January 2016 the economy actually
lost 2,999,000 jobs, or 2.08% of the workforce. The Labor Department arrived
at a positive employment number because the BLS seasonally adjusts the data--my
friend David Stockman had more to say about his in his excellent blog.
On a seasonally adjusted basis the U.S. economy created 413k, 000 jobs during
that timeframe. Of course, it makes sense to adjust the jobs data for hiring
and firing around the Christmas season. But it makes much more sense to look
at the data year over year for a more accurate assessment of the labor market.
During December 2014 thru January 2015 the economy shed 2,820,000, or 1.99%.
Therefore, the economy not only lost 179,000 more jobs this year during the
post-Holiday layoff season than it did the year prior, but it also suffered
a greater percentage of job losses than it did during the comparative time
frame.
What makes this layoff picture even worse is the number of retail corporations
that are in the process of closing their brick and mortar presence. For example,
Walmart is closing 154 stores in the United States and is laying off 10,000
employees. There are also about 6,000 other major retailers that are in the
process of shuttering up their stores. This means the part-time, retail-job
growth economy, which has been the staple of hiring since the recovery began,
will be shedding more jobs at an increased rate going forward.
And please don't believe today's 4.9% U-3 unemployment is comparable with
times past. The last time the unemployment rate was 4.9% was February of 2008.
At that time the Labor Force Participation Rate (LPR) was 66 and the Employment
to Population Ratio (EPR) was 62.8. Today's low unemployment rate comes with
a LPR of only 62.7 and an EPR of just 59.6.
But the major point here is that a low unemployment rate can never lead to
inflation. And this is especially true when all of that job growth is the seasonally
adjusted phantom variety. The Keynesian squatters who inhabit the FOMC believe
dogmatically that inflation is the result of too many people being employed.
However, what they fail to understand it that inflation is all about a loss
of confidence in the purchasing power of a currency. That can never be the
result of a low unemployment rate.
Nevertheless, Yellen and her Philips-curve junkies indicated clearly in the
Semiannual Monetary Policy Report to Congress on February 10th that the FOMC
will lean toward hiking interest rates until the U-3 unemployment rate begins
to rise. This means the Fed will be threatening to continue tightening monetary
policy into an incipient global deflationary depression. But Yellen will not
be able to increase the Fed Funds rate above the 75bps level before the bottom
completely falls out on the global economy. Perhaps she will be pretend the
world isn't collapsing around her for a little while longer. But we all know
better and it won't be long before the Fed joins the rest of the developed
world's central bankers into perpetual QE and NIRP.
