Feds change course and plan rate increase in 2023

Jerome Powell

Wednesday's news from the Federal Reserve’s two day meeting gave a surprise to many observers and government officials when they announced a “sooner rather than later” rate increase at the end of 2023, to be exact, by 0.6 % from the long held zero percent.

Statements at the press conference from Fed Chair Jerome Powell caused 10 year Treasuries to hit 1.569 percent from the previous 1.498, and caused the Dow Jones to drop to 0.8 percent lower according to the Wall Street Journal.

While the news was a surprise, it was tied to a strong recovery for the US economy and fears of higher inflation that has crept, some say alarmingly fast, with increased consumer spending.

People have been sitting on a pile of accumulated cash, from the pandemic lockdowns, stimulus checks, and their actions have been supported by increased vaccinations; a marked departure from a few months ago, and the Fed noted in a later statement that, “Progress on vaccinations has reduced the spread of Covid19 in the United States.”

It seems that the Fed is taking both caution, as well as recognition of these economic realities which have others concerned about inflation seeing price increase on services, rather than goods, as consumers are now ready to travel, with restrictions lifted by state and local governments, coupled with the increased vaccinations.

“We wouldn’t hesitate to use our tools to address that,” added Powell about fears of inflation.

The current thinking, from she and Powell, is that inflation will be allowed to increase, with an expected decrease; but, the Labor Department has noted from their own consumer price index, that in May, there was a 5% increase from a year earlier, with current averages at 3.4%.

While employment is one of the two mandates for the Reserve, (along with keeping inflation at 2%) there have been mixed numbers; and with April and May, adding a total of 837,000 jobs, many are unsure of the future.

The response from the general public has been muted; but, there are still 7.6 million jobs less than February of 2020, the baseline measure, causing even more concern in the Biden administration.

As we previously have noted, some of those jobs may never come back and the increase of retirement is pulling down labor force participation, said Powell, and the Journal noted, “Some 2.6 million people retired between February 2020 and April of this year, according to estimates from the Dallas Fed.”

Powell noted that the unreliability means that predicting will be difficult, and said, “So we don’t know exactly what labor force participation will be as we go forward.”

There are still those who are reluctant to enter the job market for fears of crowded office spaces, equally crowded forms of public transportation, lack of child care (which might improve in the Fall) and a desire to change jobs for higher wages and better working conditions; all of which, for some have been eased by the $300 in extended unemployment benefits, but which some lose as early as the weekend as 25 states are ending them, as they feel it is an impediment to seeking employment.

Thursday did see an increase in weekly jobless claims by 37,000 to 412,000, from the past week, but the four week average has set a new normal level of 395,000, the lowest since March 2020, when the virus first surged in the US.

It’s obvious that the US economy is on an uneven road to recovery post pandemic, but it’s also true that the changed landscape has upended previous thoughts and assumptions about what can be believed and changed, or in the words from a previous editorial meeting, “This isn’t your grandpa’s recovery.”

 

May Jobs shows a rocky climb to recovery for the U.S.

 The May Jobs Report released on Friday by the U.S. Labor Dept. showed a 559,000 increase in non farm jobs, a plunge from the 671,000 that most economists had predicted. Still, it’s a good deal better than April’s disappointing plunge of the now revised 278,000 which sent shockwaves through Congress, the White House and academia.

Nevertheless a disappointment is still a disappointment, and when the economy is still mired in the midst of a global pandemic, the numbers released give a shaky report on the progress of progress for an American recovery.

Nick Bunker, economic research director for North America at the jobsite Indeed, described for The Wall Street Journal that, “It’s a bit like a rocket where takeoff has been slightly delayed, but takeoff will still happen.”

“It’s a middle-of-the-road report,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, of the May numbers to The Wall Street Journal. 

“It is disappointing relative to where we were a few months ago, where we were anticipating you could see a million-plus type prints over these coming months. We have had to ratchet down our expectations about what job gains are likely to be going forward,” he added.

The bright spot as many cities eased covid restrictions is that leisure and hospitality jobs shot up to the tune of 292,000 jobs. But, that is still an area that is desperately seeking new hires and is begging as many of the potential workers are women, and especially women of color, who are either still helping young children with remote schooling, and juggling housework along with meal preparations; while still others, maybe buoyed by the extended unemployment benefits of $300 per week, are weighing their options for higher wages and less physically demanding work.

Still others are afraid of contracting the virus and those without cars may not want to ride crowded busses and trains to jobs, where working elbow to elbow, they face the risk of the virus, or any of its mutations.

The rate of unemployment for women is 5.5 versus 6 percent for men, and an overall 5.8 percent for May.

What may occur in the Fall if the double dose shot of vaccination continues, and schools reopen, is that more women will return to those jobs, and ease the burden of child care, as well.

One significant factor is that the average leisure wage of $18.09 is well below that of private sector wages, reported the Journal.

There are some signs already as gains in restaurants, hotel, and school employment rises a bit. But the trend will have to continue to see real gains.

Black employment continues a high, this month of 9.1 percent unemployment, the highest of all groups with 7.3 percent for Hispanics making for a challenge that is historically unmet, often with the oft used phrase, “When whites sneeze, blacks get a cold.”

Most concerning is that the labor force participation rate is relatively unchanged from 63.3 to 61.6, and the gender and racial gap reflects much of that.

Adding to the mix, Julia Pollak, a labor economist at Ziprecruiter.com, to The New YorkTimes said “there was a mismatch between the type of jobs being offered and those being searched for. More than half of seekers want remote work, while only 10 percent of employers are offering that option.”

The good news is that much of the current wage increase is from a 15 cents wage increase bringing overall pay to $30.33 in May, but that it is due to an increase in younger workers, especially teens, willing to work at lower wages, as their share of the workforce increases.

While all of this is a complicated picture for most to process, it’s important to realize while the road ahead is guaranteed to be rocky, the U.S economy of unfilled jobs is lower than the 10 million previously reported, and those whose job loss was attributable to Covid is now 16 percent less that it was in the last two quarters.

Adding to the increase in average gains of employment for the second quarter of 540 positions, as cited by the Times, coupled with those long term unemployed people, (more than 26 weeks) the corresponding drop to 3.8 million, approximately 40 percent of the total, then there is indeed welcome news for May, albeit uneven.