Last week, the biggest surprise was the November “jobs report” that 266 thousand jobs were created in November — way more than the 187 thousand new jobs that analysts expected. Plus, we learned more jobs were created the two previous months than reported earlier. The three-month rolling average is a whopping 244 thousand – very impressive for an economy with a recession in the manufacturing sector and whose total open, available jobs recently dropped below six million. No, more people didn’t get off the couch and get into the workforce. The Labor Force Participation Rate actually decreased slightly to 64.2%. Where did these people come from? We know that 50-60 thousand returned to work at the end of the GM strike, but what about the rest?
Keynesian economists are fond of the “Phillips Curve,” which says there is an inverse relationship between unemployment and inflation, whereby inflation goes up when unemployment goes down. Today, unemployment has dropped to 3.5% — a fifty-year low. Therefore, we should watch out for inflation. Historically, the stock market goes down when there is a good jobs report, because the Fed will quickly raise interest rates, to dampen inflationary expectations. This time, the stock market soared with the good report. However, the Fed has been firmly parked on the sidelines, doing nothing.
So, here’s the question: Has the President destroyed Phillips Curve, either temporarily or permanently? With his continuous pounding of the Fed and their recent obedience, does the Fed even matter any longer? The stock market doesn’t think so!
How much power do we want future Presidents to have?