The Employment Report - Not Bad Enough To Derail Fed Action
Fri, Sep 4, 12:11 PM ET, by Bob McTeer
Like Wagner's music, the August jobs report is better than it sounds. Not great, but good enough to permit a long-overdue tiny adjustment in the Federal Funds rate.
Yes, 173,000 more establishment payroll jobs could have been better, but the farther we go in taking up the slack in a labor market with increasing mismatches between skills demanded and supplied, the harder it is to stay above the 200,000 rate. Besides, we should also count the 44,000 jobs added to the June and July estimates. And, given labor force shrinkage, an impressive 237,000 fewer people counted as unemployed, thus bringing the unemployment rate down to 5.1 percent. Five-percent unemployment here we come.
Of course, the big question on people's minds is what is the impact of this report likely to be on the FOMC's decision on rates. Coming in the midst of all the financial turmoil recently, this report is probably a small argument for delay. However, if I were still a member of the FOMC—and remember I was known as the Lonesome Dove—I'd vote for a September increase anyway. Not so much because the jobs report was not as bad as it sounds, but because normalization is long overdue. Too bad opportunities were missed prior to August 11 when China made a sensible and modest adjustment in its currency management. But, even so, it looks like markets will continue to obsess over timing until the band aid is ripped off.
I've been a victim, I think, of the frog in boiling water syndrome. I don't know exactly when the prolonged emergency monetary policy became overdue for change, but I do believe it has. There is no emergency in the U.S. economy anymore. We aren't doing well, but we are doing better than almost everyone else. And, don't forget, we don't measure our output on a per-person or per-worker basis, but on an aggregate growth basis. We can't expect such a shrunken work force—some of it voluntary, by normal retirement, rather than involuntary because of cyclical weakness—to put up aggregate numbers to match those of a larger work force relative to population.
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