I maintain that the Federal Reserve’s primary goal has been to suppress wage growth. With wage growth at the bottom of the cycle, the institution is closing in on its policy goals. Wage growth is trending towards 3%, while productivity, they believe, is actually 1%. These conditions are conducive to achieving the 2% inflation target. With this context in mind, let’s take a look at the latest report.
By BLS: “Total non-farm employment was little changed in November (+64,000) and has shown little change since April, the U.S. Bureau of Labor Statistics reported today. In November, the unemployment rate was little changed at 4.6 percent from 4.5 percent in September. Employment in the health care and construction sectors rose in November, while the federal government continued to lose jobs.”
October’s employment numbers were particularly volatile, so I interpret the reported decline of 105,000 jobs with caution. Job creation averaged just 17,000 per month over the past six months and 55,000 per month this year – levels not seen this century outside of a recession. Excluding the healthcare sector, recent job growth has been negligible.
Below you will find the monthly overview of jobs created and lost.
I argue that the Federal Reserve is probably comfortable with an unemployment rate as high as 5%, provided unemployment claims do not increase substantially. While an interest rate of 4.6% may worry the general public, the Federal Reserve’s announcements indicate that there are no immediate concerns.
Although employment in the industry has not seen a sharp decline, the sector has lost jobs for several months in a row.
Employment in specialist contract construction continues to decline.
Residential construction employment has remained resilient, even in the face of negative revisions to some jobs reports this year. This labor data pool has been critical to my work on the economic cycle, as this sector traditionally breaks down before a recession begins.
In this context, builders’ confidence has increased in recent months.
Conclusion
The labor market is now softening more noticeably, but according to the Fed there is no break! I know it seems wild to a lot of people, but this is who they are, and I can argue that they are fine with wage growth falling and unemployment rising. If they want to get back to 2% inflation, they need to see more pain, so if unemployment claims go higher they would go bankrupt. That hasn’t happened yet.
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