June Jobs report still shows a tight labor market

Resilient, durable, and solid are just a few of the adjectives that highlight the June Jobs report released by the US Labor Dept, on Friday, but much like the three previous months, nothing significant has changed, and even with the 209,000 non farm jobs gained, the news of a slight reduction in the unemployment rate from 3.7 to 3.6 might give a glimmer of hope for a reduction in inflation, it is not enough, and it is widely anticipated that at its July meeting the Federal Reserve will give yet another rate increase.

The lessening of the unemployment rate got mixed reviews from some economists and observers but it was mixed at best. For some, the job losses were notable for the reduction in retail and tech services, a trend that we have seen before. But, equally concerning was that wages increased slightly to 4.4 percent but gave only a slight edge ahead of the inflation rate, currently at 4 percent.

Those sleepless nights for Fed Chair Jerome Powell will continue as he predicted that it was going to be a long slog to bring prices down to the 2 percent inflation that is the mandate of the Reserve.

As he noted in June, “there is a path to setting inflation back down to 2 percent without having to see the kind of sharp downturn and large losses in employment.”

Those early predictions of a soft recessionary landing that Powell noted along with Treasury Secretary Janet Yellen, from 14 months ago, may yet come to pass.

A big surprise was that while factories fell flat, new home sales rose despite high interest rates and for a 30 year fixed rate rising from 6.39 to 6.57, and for new homes, there was a gain of 23,000 jobs in construction alone, further emphasizing the conundrum that is the US economy.

There was some solid footing in the report, those of prime working years, ages 25 t0 54 shot up to its highest level since May of 2002, at 80.9 percent.

The US, like most of Western Europe, is facing the challenges left from the covid pandemic, and the increase in service costs has increased in areas such as airline travel, (on June 30th, TSA screened 2,884,783 passengers) as well as the cost of dining out, but with higher wages exceeding inflation, the increase is a gut punch for the former, and a pinch for the latter; and, especially for an industry that is in recovery from the decimation of the pandemic and lockdowns. But, Americans seem unabated in their quest for travel and restaurant meals.

Another surprise was that those of prime working ages, 25 to 54, increased 75.3 percent in June, the highest in the US since 1948. And, leading the pack were women hit 77.8 percent, with Black women at 60 percent.

While there are still less child care workers, employees, according to an NPR report, have bargaining power, and employers are willing to be flexible between hours worked to accommodate family life and remote working, for those that can.

CNN reports that this was “the third consecutive month that the participation rate for women between the ages of 25 and 54 has set a record high.”

Traditional roles for working women increased, they added, and included healthcare at a fast clip, as well as educational gains, and “greater inroads into traditionally male dominated fields such as construction, agriculture, and repair and maintenance.”

The bad news? Women are still making less than men, “about 82 cents for every dollar a man earned, according to a Pew Research Center report released in March.”

The Paradox of the US Economy

For even the most casual observer of the American economy, paradoxes abound: fears of recession, yet a strong labor market, strong wages and a record low unemployment record, high inflation, yet increased consumer spending, and a lack of affordable housing, coupled with lower gas prices. If it seems like a merry go round, then that may well be the best possible description.

Federal Reserve Chair Jerome Powell has had the unenviable task of trying to tame inflation and keep the mandate of full employment and to hold inflation at 2 percent, and last week’s appearance before Congress gave him the opportunity to explain to lawmakers where he and the rest of the Board stand in their quest to lower prices.

Despite several rate increases, the Chair has to also consider a strong and durable labor market that seems, resilient at best, and stubborn, at worst 

Powell’s trademark stoicism and data driven approach have not always gone down well with many, and some Americans still think that the Reserve is a private bank adding problems of perception, and reality, to his mandated report.

At the House Financial Services Committee he noted that the US is far from taming the economic challenges and “wrestling down rapid price increases.”

The good news: “Inflation has moderated since the middle of last year”, but the problem is that even with the decrease to 4 percent, “getting inflation back down to 2 percent has a long way to go.”

Conundrums abound with the most prevalent is the lowered cost of gas and food prices, which has increased consumer spending on leisure and dining out, and as a recovery from the Covid pandemic it is welcome, but does nothing, despite higher interest rates to lower spending.

The Consumer Price Index released in the middle of last month showed the following:

“. . .  a rise of 0.1 percent in May on a seasonally adjusted basis, after increasing 0.4 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.0 percent before seasonal adjustment.”

The Associated Press noted that, “Yet some positive signs, even in the measures of core prices, suggest that underlying inflation pressures may be receding. The outsize increases in core prices were driven mainly by rising rents and by another spike in used car prices. Real-time data suggests that increases in those categories will soon ease and help cool inflation.”

That however is debatable in some quarters of both the financial community and the academy where many feel that this is a see-saw effect, at best, and not to be relied upon.

Adding to the worries are those of bank solvency, especially after the fall of the Silicon Valley Bank, where there were Depression era fears by some.customers, and local lawmakers. While there were many fathers for that failure, Powell was quite clearly told off by the formidable Massachusetts Senator Elizabeth Warren who said, “At the Fed, you are the one who lobbied, who drafted and who voted for weaker rules, and you were ultimately responsible . . . [for the behavior] of the Fed who fell down on the job.”

He responded by saying that the Fed had “learned some lessons” and added. “I would say we are committed to learning the right lessons from what happened to Silicon Valley Bank. I think there is a clear need to strengthen both bank supervision and regulation of banks of that size.”

To that effect he has appointed Vice Chair Michael Barr as the point person in that efforts and also noted that banks below $100 billion in assets would not “be impacted by any non-capital improvements.

Questioned further by Warren, the Chair added that "more capital means more stable banks and stronger banks, but there’s a trade-off there, you’ve got to make a judgment about where you draw the line.”

That line seems to have been drawn with the increase in interest rates that began last year and after a pause in May have resumed at a current range of 5 percent and 5.25 percent with the expectation that there will be more, and the Chair has said that there will be “at least two interest rate increases are likely necessary this year to being the inflation rate down to the US Central bank’s 2 percent target,” reported Bloomberg.

The Federal Open Markets Committee noted Powell, “that it will be appropriate to raise interest rates twice or more times by the end of the year.”

He added  that the FOMC is not focused on “a particular number of rate hikes” but to try to hit the mandated target of 2 percent.

It’s important to note that there has been a cooling of inflation, from its peak of 9.1 percent a year ago, but the cool down is too slow for many economic observers.

Moving away from the Hill, the challenges for many Americans are many, and that the increases hit the pocketbook for higher borrowing costs, and that the rates that the banks have is “passed onto consumers in the form of higher interest rates on things like auto loans and mortgages,” noted Dan Tolomay, chief investment officer of Trust Company of the South, in remarks to Fortune.

With a tight labor market and record unemployment of 3.7 the challenges are many and with core personal consumption at 4.7 percent in May, and in June, it was increased to 0.1 percent deleting volatile food and energy prices, for goods and for services at 0.3 percent, coupled with the lack of affordable housing in the rental market, and higher mortgage rates for home buying the die is set.

Home loan rates are now at 6.57 percent, and in late May Freddie Mac Primary Mortgage Market Survey reported that the average for a 30 year fixed home loan rose nationwide from 6.39 percent within one week.

Wages have seen a decrease, and many working families are feeling the pinch, and for those in New York, Boston, and Chicago, the pinch is almost a punch, especially for minimum wage workers.

A new report from Housing Action Illinois reports that a salary of $57, 600 would be needed to rent a 2 bedroom apartment in Chicago, or $27.69 an hour, or working 85 hours a week for those making the minimum wage; and for people of color, most likely to be renters, the effect is especially pronounced.

Bob Palmer, policy director for Housing Action Illinois in an interview with the Chicago Tribune, last month noted the need for a greater public investment in affordable housing and said, “Obviously, it’s not a new problem, but the cost of housing in the private market continues to go up, and it is out of reach for people with the lowest incomes.”

With the defeat of the Biden Administration's plan to offer student debt relief from the conservative US Supreme Court, housing costs are going to be even more challenging, especially for those workers in their mid 20’s, but with an overall total of 43 million people, or 1 in 8 Americans.