Yesterday’s monthly “jobs report” was a good example of when good news is not so good. Expecting a healthy 258 thousand jobs were created last month, Wall Street was stunned to see twice as many jobs were created. It was a blow-out number, suggesting the economy was still strong, but why did Dow futures suddenly drop 220 points. Shouldn’t investors be happy that America was producing so many jobs?
Well, NO! That’s means the Fed must continue raising interest rates rapidly to suppress inflation, because the economy is still TOO strong. Wall Street does not like rising interest rates, which reduce earnings-per-share. This jobs report makes the next rate increase more likely to be 75 basis points, instead of the 50 I was expecting.
My expectation is that this blow-out good number is over-stated and will be reduced next month. Still, does this strong job growth mean that the economy is not in a recession? Pundits quibble about the definition of recession. The Federal government is the ultimate “definer”, but they use a moving target. When the GDP growth slows substantially, that is called a “growth recession” which we are surely in. While we have had two successive quarters of shrinking GDP, which has been the traditional definition of recessions, that shrinkage has been very little. That’s one of the primary reasons I predicted a “gentle recession.”
However, it is worrisome that the Labor Force Participation Rate continues to decline slightly. While we have recovered all the jobs lost during the pandemic, the labor force still has 623,000 fewer workers. There are 1.8 jobs for every job-seeker in our country! During the recession of 2008/9, male workers were particularly hard-hit. During the pandemic recession of 2020/2022, female workers were hit harder. Many need child care to return to work. Plus, don’t forget a million Americans died from Covid.
Republicans tend to think all the American Rescue money made workers lazy. Democrats have a multitude of explanations, i.e., early retirements, starting their own business, seeking educational or personal growth, fear of the pandemic, etc. But, how do we get them to rejoin the labor force? Certainly, inflation is driving retirees back, but that is a slow process. Please come back! America needs you!!