This news also brings the country to a milestone: each and every job that has been gained this year recoups the losses from the Covid pandemic, not an insubstantial feat, for a country that was brought to its knees with the pandemic wreaking havoc on the economic health of the world's largest economy.
The unemployment rate, what we call the marquee rate, descended to 3.5, from last month’s 3.6. There was a conundrum, of sorts, with a flattening of the labor force participation rate that has caused concern for some economists and observers, not to mention employers, looking to hire.
While, for some, it may be more of a backstory, it’s still a significant outlier for those whose job it is to study the economy, or at least follow a trajectory, and one of them is the Federal Reserve Board, whose twinned mission of keeping inflation at 2 percent levels, and the nation at full employment, has watched this report with some concern, especially with the overall increase in wages from 4.9 percent to 5.2 percent and with the series of scheduled rate increases, the last of which was 0.75, the highest in decades; but, now comes concern that these employment gains coupled with higher wages, needs a cooling down to avoid higher inflation, and we will have to wait till September to see what the Fed will do.
Of course, the R word has been bandied about so much in the general media, that many want to see the word banished from the vocabulary of news programs as the continued lead stories on radio, television and the internet, is “Folk’s we’re headed into a recession.”
For those that stayed awake in Econ 101, it’s easy to see that this is pure fallacy: 376,00 jobs for June and 528,000 for July, it’s better to state, “Ain’t no way!”
This strong labor market is one that Chair Jerome Powell has also cited as a reason to say that the US is not in a recession.
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| Jerome Powell |
The agreed upon wisdom is that there must be two quarters of retraction in the GDP which we have had, but absent rising unemployment, and other facts, we are not. Those other factors are: “falling retail sales, and contracting measures of income and manufacturing for an extended period of time.”
Of course, despite the high wages, prices are well, high, as anyone who pumps gas at the station knows, wages are not keeping up with inflation. For example, a local fast food supervisor told us that he can’t even get a full tank on his kid-friendly SUV, without shelling out $100.00.
Some drivers are feeling a sigh of relief at an average price of $4.79 a gallon as welcome news.
There are concerns present with the household survey standing at a nearly unchanged labor force participation rate of 62.1, even but that alignment, even with the upward revisions for May, and June, shows that the American economy is much more robust, and resilient, than many would have thought.
“As long as you’re above 200,000, you’re still doing better than pre-pandemic and it’s still strong, “said Diane Swonk, chief economist at KPMG. “It doesn’t feel very good, because it’s being accompanied by inflation,” reported CNBC.com
From all reports it seems that the Biden Administration's efforts with a slimmed down version of the “Build Back Better Act” is destined to become law after weeks of negotiation with Sen. Joe Manchin of West Virginia and also the support of Arizona Sen. Krysten Sinema, both bulwarks against the previous bill.
With its increase in increased tax rates for high income earners, the estate tax, and a much championed push for a tax on billionaires, and while broader tax increase are missing that were much desired such as, capital gains, to 25 percent, and a restoration of the “the top income tax rate of 39.6 percent, among others, the legislation is expected to bring down inflation with efforts by the Federal Reserve.
Tax experts and economists expect that the reduction will be felt over years, and not months, and one source, according to Vox.com “Shai Akabas, director of economic policy at the Bipartisan Policy Center: I think it’s likely to have a modest downward effect on inflation, so directionally, I think it is likely to push downward on prices. But that’s unlikely to be the primary effect of the legislation, given how many specific policies there are.
Most of the impact on inflation and the broader economy from this legislation is likely to be medium-term, not felt in the immediate next few months, which is how households are thinking about inflation.”
He also added an important note: “That’s largely because there’s very little that policymakers can do, certainly on a legislative basis, to impact inflation overnight. That is primarily the job of the Federal Reserve. … There’s not much you can do, absent overnight taking lots of money out of the economy, out of people’s pockets — which is not something that Congress likes to do or almost ever does — that is going to dramatically change the immediate inflation outlook.”
The push to bring down inflation is needed, as Swonk noted, when she said, “At the moment, inflation is hurting everyone. It’s an equal opportunity scourge at this point,” and Michael Gapen, chief U.S. economist at Bank of America, added “What policymakers are faced with is pushing the unemployment rate higher.”
That would also affect unemployment especially on the lower rungs of service and retail jobs, especially in two income families where female employment is mostly seen.
Gapen also feels that by the end of the year, “job growth could turn negative, followed by the possibility of several monthly reports of job losses as high as 150,000. He expects a shallow recession to take hold by then,” they added.
Right behind him is Swonk who “said she also sees payrolls turning negative, with monthly job losses between 100,000 and 200,000.”
While the service sectors such as leisure and hospitality have seen the greatest growth, 96,000 along with that catch all category of business services have expanded to 89,000, these numbers represent an expansion of a much needed workforce, with some previous barriers such as marijuana convictions, and the lack of a college degree deleted.
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| Diane Swonk |
As Gapen and Swonk indicate these growth areas could be those cut by year end. But, this has also seen cuts on the corporate side when Walmart has targeted 200 corporate jobs for layoff, as noted in a New York Times report, quoting their announcement that “American consumers were pulling back on purchases of general merchandise to focus on necessities like groceries. The company said it expected operating profits for the full year to fall by as much as 13 percent, as the company was forced to continue marking down inventory that wasn’t selling.”
CNBC also quoted Wells Fargo Institute who expect that by the end of this year, “unemployment will tick up to 4.3% . . .”
President Biden has acknowledged that job growth will slow by the end of the year, and that despite contractions does not mean the economy is tanked.
Speaking of tanks, when Biden made his first trip to the Middle East and met with Gulf Leaders of Saudi Arabia it was hoped that he could bring down the price of gasoline that has forced millions of drivers in the US, and the UK, to cut back, often, on needed trips.
Unfortunately, these leaders were less than willing to budge much, and production has increased to less than one-tenth of one percent, or 100 barrels per day, an almost negligible amount that will surely not only show little effect on the needs of consumers, and will be cause of concern in the West Wing as Biden faces increased GOP criticism, as he heads to the November midterms.
While that maybe a worry for the president, American consumers have their own worries and fears about budgets, food on the table and educating their children all of which needs to be met, just as inflation nibbles away at the edges.
