The Tightening Cycle and a Precarious Balancing Act

Plus, a word on burgers in Chris Edmonds country.
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Driven to Tears

JACKSON HOLE, Wyo. -- My favorite part of

employment

Friday?

When a delta-minus on the telly looks at numbers like the ones that were

released this morning and claims to see slowdown seeds.

And then goes on to suggest that the tightening we will see on May 16 will be the last of the cycle.

Was lost ... now found ... was blind ... now sees?

Nope.

Some people never will.

Murder by Numbers

(a) The index of aggregate hours

rose 0.3% in March (compare to an average two-tenths increase since 1996) and posted a 3.1% (annual) increase for the quarter (compare to an average 2.7%). Keeping in mind that output can be expressed as the sum of hours worked and productivity, this means we're looking at yet another huge GDP quarter.

Why is it that the people who beat the productivity's-even-bigger-than-you-think-and-likey-only-to-get-bigger drum hardest are the very ones who keep telling us that growth's crested? Over and over again? Thistimewereallymeanitthistimeforsure?

Anyone?

Anyone?

Anyone at all?

(b) Average hourly earnings troughed at a 3.3% year-on-year rate in November.

They're

rising at a 3.8% rate now.

That's an acceleration of half a percentage point in four months.

The Kudlow crowd sees nothing actionable here because earnings growth still sits below the 4.4% peak it hit in May 1998.

Can you imagine though? If the situation were reversed? Can you imagine the easings these guys would be screaming for if earnings growth

decelerated

by half a percentage point in four months?

That's not what really matters anyway. What really matters is what policymakers

believe: "At some point ... short of the repeal of the law of supply and demand, wage increases must rise above even impressive gains in productivity."

Now. Given that, and given that the sorriest measure of wage growth of them all is now showing some acceleration, why in the world would anyone be suggesting that the end of the tightening cycle is nearer today than it was yesterday?

That's stupid.

It's nucking futs.

(c) Nonfarm employment grew 2.2% last year (a year during which GDP grew 4.2%, mind you); it

held at that pace during the first quarter of this year.

Service-sector employment grew 2.9% last year; it decelerated to a 2.6% rate during the first quarter of this year.

Is that the employment slowdown to which folks are referring?

And given everything we know about labor at the moment -- given the stories we all hear about unskilled, low-productivity mo-rons (yours truly included) demanding and getting from their desperate employers ridiculous compensation concessions, and given that the heads of employment agencies are saying things like "I've been in this business 31 years and this is the toughest recruiting I've ever seen" and "I could put to work another thousand people right now, that's how many open orders we have" -- what seems more likely?

That the three-tenths deceleration we see in service-sector employment comes as the result of a notable slowdown (actual and-or expected) in the pace of business activity?

Or that it comes as a result of hirers not being able to find enough bodies?

An employment slowdown that stems from the demand side is good (from a central-banker point of view) for wages.

One that stems from the supply side is not.

And the people who think that what we're looking at now is the former probably need to do more thinking.

Epilogue

The central bank will keep tightening in quarter-point increments until it gets the meaningful economic slowdown it wants.

How will you know when we've gotten to that point?

It's simple.

Things like the superb chart in this

piece will tell you.

And so will your narrator.

Side Dish

There seems to be some confusion as to what's the best burger in Atlanta.

Listen.

A Varsity burger is what you're looking for if (a) you're drunk enough to make Otis look sober (b) you're a trashed Georgia Tech student looking for something cheap to fill your hole in the wake of one of many Yellowjacket basketball losses or (c) you grew up believing that Kroc got it right.

Otherwise? Head to the Vortex. Buy a burger. Eat it. You'll be happy you did. And if you aren't? I'll reimburse you.

Don't do what I did.

Don't learn the hard (and painful) way.

Biggest bust?

Tiger.

Sosa.

Junior.

Van Horn.