The WSJ asks "Is the Booming Job Market a Problem?" I ask "Are Jobs Booming?"

Mish

The Wall Street Journal believes the Fed has a jobs-based dilemma. Let's investigate the claim.

The WSJ says the Fed has to figure out whether inflation is around the corner. Allegedly, the wrong choice could cripple the economy.

Please consider The Fed’s Biggest Dilemma: Is the Booming Job Market a Problem?

No question looms larger for Federal Reserve Chairman Jerome Powell than this: How low can the U.S. unemployment rate safely go?

Only twice in the past half-century has unemployment fallen to its current rate of 3.8%—for a few years in the late 1960s and for one month in 2000.

The ’60s episode spurred years of soaring inflation that would take a decade for policy makers to corral. The latter coincided with a technology bubble that, when it burst, caused the 2001 recession.

Confusing Trigger With Cause

The WSJ says the "wrong choice could trigger a recession."

The Fed has already sewn the seeds of the next recession. One extra rate hike will not matter one bit. Bubbles eventually burst, so let's not confuse an alleged trigger with a cause.

How Low Can Unemployment Go?

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That's a silly question. The Fed has so distorted the economy with cheap money for so long, that no one should even bother asking the question.

Whatever the "natural" unemployment rate is, neither the Fed nor anyone else can possibly divine the number. Powell at least understands that point. He said the natural rate of unemployment could be anywhere from 3.5% to 5%.

Hiring Intentions

Before we can even begin to address the question "Is the Booming Job Market a Problem?" we should first ask "Is the Jobs Market Booming?"

Danielle DiMartino Booth asks the right question and comes up with the right answer.

Booth asks: Strong Labor Market? Dig a Bit Deeper

She notes that hiring intentions this year are off by almost half compared with 2017.

Some of the best insights into the overwhelming demand for workers can be gleaned from the less-followed but rich data published monthly by Challenger, Gray & Christmas. The firm is best known for its data on layoffs, but its monthly hiring announcements provide great information on the bottlenecks in the labor force.

The big picture is stark. Hiring intentions this year are off by almost half compared with 2017, driven by a collapse in the demand for workers in Information Technology, Entertainment & Leisure, Telecommunications and Retail. What little demand there is can be seen in some of the industries that have the smallest pools of available workers such as Construction, Energy and Electronics.

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As difficult as it is to imagine, big parts of the underlying economy have been slowing even as the industrial sector gets juiced by a weaker dollar, the worst year on record for natural disasters in 2017 and fears of a trade war erupting.

New vs Reposted Listings

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One thing is certain: the gap between the new job postings and re-postings will be resolved as companies take steps to contain their labor costs. A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare. The likelier outcome entails the disruption of the illusion floating markets today.

Lagging Indicator

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The only thing missing in Booth's report (and I am sure she understands this quite well) is that jobs are a lagging indicator.

And don't count on a warning either.

Even if the jobs market is booming, that fact in and of itself is a useless predictor of future activity!

Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail.

The fruits of overexpansion are sewn. The stock market and junk bond bubbles provide sufficient evidence. So let's not fool ourselves as the WSJ did with its discussion of an alleged "dilemma".

It's too late to stop the upcoming recession and stock market collapse no matter what the Fed does or doesn't do this year.

Mike "Mish" Shedlock

Comments (20)
No. 1-20
Jojo
Jojo

But what does Trump think? He seems to have an opinion on just about everything. Ask him to tweet us his viewpoint.

Realist
Realist

“A miracle manifestation of skilled workers to fill the open positions would validate economists’ rosiest forecasts. But miracles are rare.” If only trump could train all the unskilled unemployed to fill those empty jobs. Instead he picks fights with his trading partners. As I keep saying, he is fighting the wrong war.

Blacklisted
Blacklisted

"Loosey-goosey Fed policy for nine years artificially created all sorts of jobs, especially in low-paying fast food services, drinking establishments, and retail."

Once again, you are looking at the US in isolation. Stocks have not been rising because of our great economy. It's primarily due to capital flows looking for a safer haven, and with bonds yielding next to nothing, and negative in the EU, stocks are the only choice for the big money. The Fed is not raising rates because the economy is too hot. They are raising rates to postpone the pension crisis, and they will continue to raise rates to prevent having "perpetual bubble blower" on their gravestone. As the EU implodes, stocks and the dollar will continue to rise no matter what the Fed does, and until another emergency Plaza Accord type of meeting stops the rise of the dollar and resets the system.

After 10 years of QE in the US and Europe, and 25 yrs in Japan, I think the evidence is clear - the Fed is impotent against the Invisible Hand. If there is no confidence to lend or borrow, how exactly does the printed money get into the economy? As you are aware, the only thing the low rates have provided is justification to replace workers with robots, and reduced pension funding. The bubble is in govt bonds, not stocks.

shamrock
shamrock

With the economy growing at less than 2% for the last nine years, when and how did the economy "over expand"? Yes, companies borrowed shitloads of money, but mostly they bought back stock and did not invest in expansion.

Realist
Realist

Blacklisted. I keep asking you to explain how raising interest rates will postpone a pension crisis but you never answer. I have explained to you what nonsense that is, but you never respond to that either.

nic9075
nic9075

Things are going gang busters in the greater Boston and NYC area. Tech, life sciences especially are doing great

bradw2k
bradw2k

That drop in hiring for "Computers", from 110K in start of 2017 to 4K in start of 2018, is so stark it sounds like a misprint. Would like to know some details there. It doesn't match my local picture of the developer scene. I just spoke to a technical recruiter manager friend who said that his 30 employees are (still) super busy, working on something like 200 open reqs in the Portland area. Developer wages are insane here, too -- one reason I only hire entry level anymore: with just 2 or 3 years of experience, a developer thinks he's worth $100K.

pi314
pi314

On the 'collapse' in demand for IT workers, could it be due to significantly lower number of H1-B visas? As far as I can tell, college grads in the software field are in hot demand.

Blacklisted
Blacklisted

Low rates have killed pensions, just as it has with savers. Having to continually roll over maturing bonds at low rates exasserbates the problem for pension funds that needs 7-8% to meet obligations. If rates are higher, pensions will also stop chasing higher yields in emerging markets, which are going to be hammered as the dollar rises. Granted, higher rates will blow up budgets as interest expense rises, but that is a problem for another day. As we are seeing with the desperate measures in IL, the pension crisis is forcing govt's to raise economy-killing taxes now. This will be the next source of civil unrest - pensioners vs. tax payers.

Sorry, I missed your explanation.

Realist
Realist

Except for US Social Security, I know of no pension fund that invests solely in government bonds. Most countries have independent bodies that professionally manage the pensions and invest in all asset classes including stocks, corporate bonds, private equity, real estate, infrastructure, farms, mines, energy development, etc etc all over the world. Rising interest rates do not help these funds. In addition, rising interest rates would decrease the value of existing low interest rate bonds in a government bond portfolio. If you want to an example of how most pensions are run these days, take a look at www.cppib.com in Canada. It’s not the best example, but it is in English. Countries like Australia, Norway, Denmark, Japan etc have even better pension funds. Plus, if the US govt wanted to fix the social security problem they would just slowly raise the age requirements and lower the amount people get. No reason to tinker with interest rates.

FelixMish
FelixMish

That last "Lagging Indicator" chart seems to say both, "A recession is when unemployment rises." and "Unemployment rises in a recession." Given that "recession" timing is often back-dated, I'm trying to find a reason why "recession" and "rising unemployment" are not synonyms.

Which, interesting thought: Maybe charts should be marked with recessions as they were considered recessions at the time of the recession, not as they were considered recessions by Monday morning quarterbacks.

Stuki
Stuki

And if only someone could train Africans walking behind a plow ox dragging a wooden plow, how to drive a modern harvester, Africa would be wealthy too……..

Except…. Tah, dah…. African don’t have harvesters. Nor roads on which to transport them to farms. Nor trucks to fill those roads. Nor the tools with which to fix them when they break. And, specifically BECAUSE of the latter, nor the skills to do so……

In individual cases, teaching someone more “skills” is no doubt a good thing. At the margin, you’re certainly helping someone by doing so. But there are very good reasons why economics is focused on capital accumulation as the road to wealth building. Not “skills” training in the abstract.

Give an African a harvester, and he’ll quickly figure out how to operate it. It is a skill he’ll have to learn, so it’s not like there’s zero benefit from teaching someone “skills.” But lack of “skill” to operate first world machinery, is not the bottleneck that’s holding African labor productivity back. If it was, it would be a fix so easy even Trump could do it. Instead, as always, the limiting ingredient is capital availability. And capital can ONLY be accumulated by (economic, not frou-frou, feel-good, marketing-speak) saving: Consuming less than what one produces. So, it’s invariably a slow, arduous, process. Which is certainly not Trump’s long suite.

US, British, Mediterranean….. labor productivity, as compared to benchmark German and Japanese one, differs from African one only in scale, not kind. And the way to “fix” the discrepancy is no different here: Stop doing anything that discourages capital formation. Even indirectly and relatively, like promoting something other than capital formation: If ambitious people can make a killing chasing ambulances and squabbling over who owns the “rights” to free money being printed up, they’ll do that instead of laboriously spending their life trying to build a better tool chest, as the latter is hard, while the former is any dilettante’s wet dream. Including Trump’s.

nic9075
nic9075

{{{I just spoke to a technical recruiter manager friend who said that his 30 employees are (still) super busy, working on something like 200 open reqs in the Portland area. Developer wages are insane here, too -- one reason I only hire entry level anymore: with just 2 or 3 years of experience, a developer thinks he's worth $100K.}}}

As long as they are UNDER age 30 and either White, Indian or Asian. Age discrimination in this field and space is HUGE as well as racism & lookism -- everyone at Facebook & Google LOOKS the same -- white, young, attractive and UNDER age 30

Blacklisted
Blacklisted

Unfortunately, most pension and insurance funds in the US are required to keep at least 50% in treasuries. Govt should not constrain the fund managers, and Social Security should have been turned into a wealth fund along time ago, but then govt wouldn’t be able to exploit the wealth gap that they are making worse.

How the Socialists Keep the Poor – Poor | Armstrong Economics
How the Socialists Keep the Poor – Poor | Armstrong Economics

Everyone knows I donated my time to try to reform Social Security and privatize it back in the 90s. I was even shuttling between the Chairman of the House Ways & Means Committee, Bill Archer, and the House Majority Leader Dick Army. I argued for the privatization of Social Security to allow it to become a wealth fund allowing it to invest in equities. The Dow Jones Industrials recently broke through the 4,000 level. The greatest obstacle was the Democrats. I had laid out the structure that we allocate money according to the track record of the manager. I was doing this because I had no interest in managing the money of this nature. The Democrats wanted to replace the fund managers at will when they retook the majority. I explained that this decision should not be political. I did not care if the fund manager voted Democrat or Republican. That just never sunk in. The Democrats painted this private investment as "risky" and they would vote against it. So Social Security invests 100% in government bonds. Let's see. The Fed lowered the interest rates to "stimulate" the economy. The net effect is that Social Security is simply a slush fund with no possible economic growth. The loss has come at the "opportunity risk" of leaving the money in bonds. Had Social Security simply become a wealth fund as so many nations around the world have adopted, it would NOT be in danger of a financial crisis today. This is the result of the Democrats who always want to strangely keep the poor poor and punish the rich. They talk about income inequality and portray this as "unfair." Yet, the very way the "rich" make their money is through investment, which the Democrats have rejected for more than 40 years. As the stock market rises further and interest rates remain low, the disparity of income will expand rapidly because they are comparing profits on investment as income rather than wages. We should expect the Socialists to get a lot more vocal over the years ahead going into 2020. They will call for the heads of the "rich" rather than address the fact that they are the very people who prevent the poor from getting ahead.

Pensions try to match the maturities of bonds to expected outflows, and are held to maturity, so they would not take a loss due to rising rates – other than the opportunity loss.

How can you say the “fix” for SS is to reduce the benefits/return? The ROI is already pathetic. The solution is to find the $trillions that the Pentagon claims to have “lost”, stop funding undeclared and unending wars, throw health care executives in jail for violating EXITISTING anti-trust laws (which has extorted trillions from Medicare and patients), eliminate redundant/useless govt agencies, and generally reduce the size of govt by at least 20%.

Norway is the exception to the rule because they recognized govt debt is not safe and they shifted from public to private investment -

The pensions in Australia, Japan, and most of the west are doomed because govt’s constantly consume more and they are running out of other people’s money to confiscate through taxes, fees, and civil asset forfeitures.

Granted, Japan will fall after Europe because most of their debt is held internally, but make no mistake, when rates rise the BOJ will also hemorrhage interest expense.

When demand for US treasuries fall with the confidence in govt, don’t be surprised when you are forced to buy treasuries in your 401K to fund govt pensions -

Department of Labor Regulating Your 401K April 16th, 2017 | Armstrong Economics
Department of Labor Regulating Your 401K April 16th, 2017 | Armstrong Economics

The financial services industry is undergoing its greatest upheaval perhaps in more than 35 years because the government came up with a brilliant new idea to pretend there is a crisis that they need to step in to save you. I have warned that there has been talk about taking over 401K funds which are about equal to the total national debt. There have been proposals that they just take control of that and stuff it by mandatory investment in government bonds. Some countries already require pension funds to be "conservative" and 85% of all money must be in government debt. The one thing we know, whenever government claims it is doing something to protect you, you can be sure the end result will only put more money in their pocket. As of 2017, what is yours, will begin the process to become theirs. The new ruling from the Department of Labor (DOL) affecting financial advice related to retirement plans is pretended to protect consumers against high fees which necessitates the government stepping in to monitor your 401K. Next, no manager will be seen as competent and the Department of Justice will start to target small retirement managers to expose them for fraud that they can then turn into a justification for government to take over ALL 401ks. This is how the whole thing will unfold all because the off-budget expenditure (Social Security & Medicare) are up 66% during the Obama Administration and go negative next year. One way to cope with all of this is to simple merge the failed government managed funds with the private funds. Consequently, thousands of advisers around the nation are already scrambling to change their practices to fit the new regulations, which start to go into effect next January (with the balance in 2018). This coincides with the new international G20 regulation whereby all countries will start report on everyone sharing that info among themselves to hunt for taxes. The Office of Management and Budget's $17 Billion Dollar number for the 401K industry is too tempting for politicians to ignore when they are in desperate need of cash. They justify this fake seizure claiming retired people are being ripped-off with exorbitant fees, which is one of the biggest lies perpetrated by The Obama Administration or any Administration in the past 100 years. This even beats the Global Warming scam to raise taxes. The Obama Administration doesn't count in that figure any fees they regard as "reasonable" compensation. To Obama, they are all unreasonable. The propaganda government always rolls out is their favorite tool to enable some sinister plot to further their power. There is just a standard playbook. All politicians pretend to care for the people. Whenever they plan something sinister, they use props like children to surround themselves to pretend they are doing good. This is standard operational procedure. This time they care so much about your future they just can't keep their fingers out of your pocket. We begin to see dramatic changes that impact even the fringe advisers like those in the gold community. Telling people hyperinflation is coming and you should sell everything for only gold will rise will suddenly become illegal and probably criminal activity that the government can use as an excuse to seize everything. The consumer will end up having to pay for information that is separate and distinct from those selling the product. The final rule means advisers will have litigation to fear if they can't prove their retirement advice prioritized the client over themselves and they had no conflict of interest. Unquestionably, this is going to be a much bigger change than the industry expects. This will impact thousands of brokerage, advisory and insurance firms that offer free advice within the $25 trillion retirement services market as a whole. They will have to adjust all their operations and procedures to comply with the rule. Indeed, some of these changes will need to be drastic and will undoubtedly fundamentally shift the advice landscape as well as the investment industry. As the DOL fiduciary rule begins to take effect next April, all financial advisers will be required to recommend what is in the "best interests" of clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement. This rule does not apply to after-tax investment accounts that may be earmarked as retirement savings or just investing. However, the back-office compliance departments will grow exponentially as a result. Citizens will have to sign documents searing the monies are not for retirement. The current standard of requiring that investment advice be "suitable" will be out the window. They'll need to craft new administrative steps and invest millions in technology and training to meet the rule's requirements. This will also mean advisers will face forced changes in how they are paid. However, the new rule doesn't ban commissions or revenue sharing. Nonetheless, it requires advisers who accept them to have clients sign a "best interest" contract exemption. Of course, that will be Pandora's box to open for lawyers, which they will of course do. The bottom-line means that the adviser will have to act in the client's "best interests" and only earn "reasonable" compensation. The exemption also must disclose information to clients about fees and conflicts of interest. Thus, a client will be able to then sue the adviser for any fees he gets from someone else to promote an investment like precious metals or muni-bonds. The nightmare that will unfold is that advisers who are really only domestic oriented will suffer losses for their clients and then be sued. The mere threat of increased liability will push many small manager/advisers away from a long tradition of charging clients based on transactions, to a compensation method that carries lower liability risks, that of billing clients a set fee. This means that paying someone a performance fee may gradually fade away. However, fee-based accounts typically don't make money for firms and thus offer little economic sense for firms. Advisers will be forced to drop undersized retirement accounts leaving the little guy stranded. This will even impact insurance companies who do have high-commission generating annuity products. We are most likely going to see earning from companies like Lincoln Financial Group, Prudential Financial Inc., and MetLife Inc, decline. The DOL rule will undoubtedly limit investor choice and this may be the end-goal. The DOL's final rule is increasing the pressure also on the SEC to approve a uniform fiduciary standard. This could have a serious impact on proprietary trading of banks as well. So here it comes. The first step in regulating 401K and they will be looking to prosecute people for conflicts of interest to make an example of them to justify a further takeover.

RonJ
RonJ

"The jobless rate has fallen below the level economists estimate is sustainable over the long run."

There is no level that is sustainable over the long run. Unemployment rises and falls. 4.5% was not sustainable when Bush Jr. was President. A 6 year expansion was not sustainable. The expansion from the 1980 recession was not sustainable, nor was the unemployment rate, coming out of it. The economy went right back into recession.

bradw2k
bradw2k
Blacklisted
Blacklisted said: Unfortunately, most pension and insurance funds in the US are required to keep at least 50% in treasuries. Govt should not constrain the fund managers, and Social Security should have been turned into a wealth fund along time ago, but then govt wouldn’t be able to exploit the wealth gap that they are making worse. https://www.armstrongeconomics.com/armstrongeconomics101/socialist/how-the-socialists-keep-the-poor-poor/ Pensions try to match the maturities of bonds to expected outflows, and are held to maturity, so they would not take a loss due to rising rates – other than the opportunity loss. How can you say the “fix” for SS is to reduce the benefits/return? The ROI is already pathetic. The solution is to find the $trillions that the Pentagon claims to have “lost”, stop funding undeclared and unending wars, throw health care executives in jail for violating EXITISTING anti-trust laws (which has extorted trillions from Medicare and patients), eliminate redundant/useless govt agencies, and generally reduce the size of govt by at least 20%. Norway is the exception to the rule because they recognized govt debt is not safe and they shifted from public to private investment - http://www.ibtimes.com/norways-sovereign-wealth-fund-many-investors-continues-sell-bonds-1379285. The pensions in Australia, Japan, and most of the west are doomed because govt’s constantly consume more and they are running out of other people’s money to confiscate through taxes, fees, and civil asset forfeitures. https://reason.com/blog/2018/05/31/american-brazenly-robbed-of-58100-life-s Granted, Japan will fall after Europe because most of their debt is held internally, but make no mistake, when rates rise the BOJ will also hemorrhage interest expense. When demand for US treasuries fall with the confidence in govt, don’t be surprised when you are forced to buy treasuries in your 401K to fund govt pensions - https://www.armstrongeconomics.com/world-news/taxes/department-of-labor-regulating-your-401k-april-16th-2017/

How Armstrong gets from "the DOL Rule will make it harder to give and get investment advice" to "the government is going to take over 401Ks" is a bit of a head-scratcher.


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