Cut it, stop raising interest rates

Whoops, total nonfarm payroll employment increased only 209,000 jobs in June, well below the 225,000 positions expected by economists.

Workers do not get or demand large wage increases, although average weekly earnings for all private sector workers in June ($1,155) increased $7 from May. But higher prices continue to erode purchasing power.

Workers are paid in reduced travel costs, not money

Employers and workers alike are finding ways to get the job done without crazy wage hikes. Judith Cordero from CloudPay – a global payments organization – told me on Friday that while employers are relieved that the “Great Quit” of 2022 may be winding down or ending, they are interested in recruiting. “Employers are digging deep into LinkedIn to reach talent,” Lamb said. But they are also trying to prevent their own employees from jumping.

Employers are on the razor’s edge of being poachers while resisting being a poacher.

While workers likely won’t leave their current job for the same money and working conditions, they may threaten to leave if they don’t get the working conditions they want: remote work. Workers, when they can, seek non-inflationary increases in living standards in various ways. They are saving on travel costs and employers are accelerating the accrual of vacation time and providing inexpensive, but emotionally valued benefits like birthdays and personal one-day vacations. Lamb said employers who demand to be on site 5 days a week will lose a lot of workers. One to three times a week is becoming the norm.

Bottom line: Although employers may be beset by tight labor markets, if they are open to having some work done remotely, they can attract and retain employees through flexibility, not inflationary wage increases.

So the Fed needs to ground itself in reality and stop being haunted by the inflation of the 1970s when then-Chairman Paul Volcker stopped inflation with relentless interest rate hikes and a crushing recession.

June 2023 Jobs Report and Shaky Worker Confidence

Although the US unemployment rate remained at a super low rate of 3.6% in June, it is still higher than the rate of 3.4% in April. And remember, the unemployment rate is a lagging indicator that reflects the supply and demand of workers several months ago. The actual rate could be higher now.

The June jobs report indicates that the tight job market is finally drawing people to work. The proportion of unemployed to new entrants increased to 9.3% vs. 8.4% in May. The job abandonment rate also increased from 12.6% to 13.2%. Layoffs are a smaller proportion of the unemployed, in 48.4%, below 48.9% in May; but keep in mind that this is a huge increase, almost a 7 percentage point jump from a year ago.

Two months ago, worker confidence fell significantly from the previous year. April 2023 dropout rates were at 2.4%, well below the April 2022 dropout rate of 3.0%. May abandons rates they were slightly higher at 2.6%.

The workers are not so fighters. TO ZipRecruiter Survey It shows that your confidence is falling. Job seekers’ sentiment that jobs will be more plentiful in six months fell from 35% in the first part of 2022 to a low 25% in April 2023.

Why the Fed’s 2% inflation target needs to be rethought

In a 2014 European Central Bank Forum, New York Times

NOW
columnist Paul Krugman started the conversation about the 2% inflation target we hear so much about. writing for Before an audience of central bank governors and economists, Krugman argued that the 2% figure is out of date. Nine years later we still haven’t answered why we should accept it.

Two percent seemed like a good confusing compromise, and over the course of the 1990s many of the world’s central banks converged on that inflation target. Why 2%, instead of 1% or 4% or zero tolerance? Krugman said the 2% target “wasn’t reached through a particularly scientific process, but for a while 2% seemed to make both economic and political sense.” And once 2% is widely adopted, it takes on power of its own. “Central bankers could not easily be accused of acting irresponsibly when they had the same inflation target as everyone else,” Krugman added.

The 2% target can really be considered without inflation. Prices go up and so does quality. Today’s $1,000 computer is worth much more than last year’s $998 computer. Quality upgrades make a price increase seem bigger than it is. But they also mean that we could have an inflation target of 4%. And if productivity is rising and wages are falling behind, then purchasing power doesn’t have to be crushed with big increases in interest rates.

The economic costs of recession and austerity can be much higher than inflation above 2%. Respected macroeconomists of the Brookings Institution and Ball they advocate a much higher target, say 4%.

Inverted Yield Curve Signals a Weaker Economy

Another sign that a recession may be underway is a inverted yield curve — the spread between the 10-year constant-maturity Treasury and the inflation-adjusted 2-year constant-maturity Treasury remains large negativewhich is consistent with indicating a recession.

He May 2023 survey of business economists found that most expected very modest growth with almost half expecting a recession by the end of the year.

So enough is enough, Fed leaders. Do central bankers really need workers to give up before they stop raising interest rates and risk a recession?