The WSJ asks "Is the Booming Job Market a Problem?" I ask "Are Jobs Booming?"

The Wall Street Journal believes the Fed has a jobs-based dilemma. Let's investigate the claim.

The WSJ says the Fed has to figure out whether inflation is around the corner. Allegedly, the wrong choice could cripple the economy.

Please consider The Fed’s Biggest Dilemma: Is the Booming Job Market a Problem?

No question looms larger for Federal Reserve Chairman Jerome Powell than this: How low can the U.S. unemployment rate safely go?

Only twice in the past half-century has unemployment fallen to its current rate of 3.8%—for a few years in the late 1960s and for one month in 2000.

The ’60s episode spurred years of soaring inflation that would take a decade for policy makers to corral. The latter coincided with a technology bubble that, when it burst, caused the 2001 recession.

Confusing Trigger With Cause

The WSJ says the "wrong choice could trigger a recession."

The Fed has already sewn the seeds of the next recession. One extra rate hike will not matter one bit. Bubbles eventually burst, so let's not confuse an alleged trigger with a cause.

How Low Can Unemployment Go?

That's a silly question. The Fed has so distorted the economy with cheap money for so long, that no one should even bother asking the question.

Whatever the "natural" unemployment rate is, neither the Fed nor anyone else can possibly divine the number. Powell at least understands that point. He said the natural rate of unemployment could be anywhere from 3.5% to 5%.

Hiring Intentions

Before we can even begin to address the question "Is the Booming Job Market a Problem?" we should first ask "Is the Jobs Market Booming?"

Danielle DiMartino Booth asks the right question and comes up with the right answer.

Booth asks: Strong Labor Market? Dig a Bit Deeper

She notes that hiring intentions this year are off by almost half compared with 2017.

Some of the best insights into the overwhelming demand for workers can be gleaned from the less-followed but rich data published monthly by Challenger, Gray & Christmas. The firm is best known for its data on layoffs, but its monthly hiring announcements provide great information on the bottlenecks in the labor force.

The big picture is stark. Hiring intentions this year are off by almost half compared with 2017, driven by a collapse in the demand for workers in Information Technology, Entertainment & Leisure, Telecommunications and Retail. What little demand there is can be seen in some of the industries that have the smallest pools of available workers such as Construction, Energy and Electronics.

As difficult as it is to imagine, big parts of the underlying economy have been slowing even as the industrial sector gets juiced by a weaker dollar, the worst year on record for natural disasters in 2017 and fears of a trade war erupting.

New vs Reposted Listings

One thing is certain: the gap between the new job postings and re-postings will be resolved as companies take steps to contain their labor costs. A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare. The likelier outcome entails the disruption of the illusion floating markets today.

Lagging Indicator

The only thing missing in Booth's report (and I am sure she understands this quite well) is that jobs are a lagging indicator.

And don't count on a warning either.

Even if the jobs market is booming, that fact in and of itself is a useless predictor of future activity!

Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail.

The fruits of overexpansion are sewn. The stock market and junk bond bubbles provide sufficient evidence. So let's not fool ourselves as the WSJ did with its discussion of an alleged "dilemma".

It's too late to stop the upcoming recession and stock market collapse no matter what the Fed does or doesn't do this year.

Mike "Mish" Shedlock

Comments (21)
No. 1-21
Jojo
Jojo

But what does Trump think? He seems to have an opinion on just about everything. Ask him to tweet us his viewpoint.

Realist
Realist

“A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare.” If only trump could train all the unskilled unemployed to fill those empty jobs. Instead he picks fights with his trading partners. As I keep saying, he is fighting the wrong war.

Blacklisted
Blacklisted

"Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail."

Once again, you are looking at the US in isolation. Stocks have not been rising because of our great economy. It's primarily due to capital flows looking for a safer haven, and with bonds yielding next to nothing, and negative in the EU, stocks are the only choice for the big money. The Fed is not raising rates because the economy is too hot. They are raising rates to postpone the pension crisis, and they will continue to raise rates to prevent having "perpetual bubble blower" on their gravestone. As the EU implodes, stocks and the dollar will continue to rise no matter what the Fed does, and until another emergency Plaza Accord type of meeting stops the rise of the dollar and resets the system.

After 10 years of QE in the US and Europe, and 25 yrs in Japan, I think the evidence is clear - the Fed is impotent against the Invisible Hand. If there is no confidence to lend or borrow, how exactly does the printed money get into the economy? As you are aware, the only thing the low rates have provided is justification to replace workers with robots, and reduced pension funding. The bubble is in govt bonds, not stocks.

shamrock
shamrock

With the economy growing at less than 2% for the last nine years, when and how did the economy "over expand"? Yes, companies borrowed shitloads of money, but mostly they bought back stock and did not invest in expansion.

Realist
Realist

Blacklisted. I keep asking you to explain how raising interest rates will postpone a pension crisis but you never answer. I have explained to you what nonsense that is, but you never respond to that either.