I remember a few months back the Fed predicted as one of its metrics in fighting inflation that the unemployment rate would have to rise. With people leaving the workforce how is this going to occur without significant economic pain? Currently what I see is wages – especially for trades – rising at an abnormally high rate. Question is is the difficulty in maintaining and building housing ( and subsequent price increase) going to offset the downward pressure on prices from economic stress and rate increases. Either way it looks like rents will be supported… so long as people can afford them.
Every piece of economic data that came out this morning, save jobless claims, printed much worse than expected. This shows a fading economy going into the end of this fourth quarter and into next year. There’s no other way to slice it; this was a terrible data dump this morning.
Rising real wages normally increase labor participation…
I don’t believe any of the theories anymore regarding the COVID-related monetary and fiscal stimulus keeping people out of the workforce. Those trite anecdotes have become threadbare. We are now going on three years since the emergence of the covid pandemic. So why haven’t workers been reentering the workforce in greater numbers?
…But not this time
Indeed, take a look at the labor force participation rate. Why does it remain stubbornly low? Why has it not bounced back since covid? Given the increases in wages that are at least mirroring official CPI data, participation should be a couple of percentage points higher, but it is not. The answer to the wage markets dilemma rests with figuring that out.
With wages and inflation rising as sharply as they have been, potential employees should be coming out of the woodwork and gaining employment somewhere to keep up with rising prices, if for nothing else. We should see the elderly coming back to Walmart as shopping greeters. We should see people strapping on aprons and taking $15 to $20 an hour jobs. But we are not, and this is adding fuel to the fire and is necessitating employers to continually increase wages as an inducement to attract workers.
At some point, even the laziest have to get off the couch and begin to figure out a way to overcome and deal with inflation. When wages are rising this sharply, the labor force participation rate should be increasing as well. But it is not.
With regards to the labor markets, anyone who is a reader of my blog already knows the obvious. I suspect the fundamental problems we are currently observing in the job market have more to do with the covid mRNA injection fallout than anything else. I suspect that wages are remaining sticky despite a real bona fide economic softening, because there are just less people available to hire. I think it’s as simple as that.
But of course, the government and monetary authorities will dance around the elephant in the room. When vitally important economic and monetary decisions are made in a vacuum and are not addressing the real reasons, the ramifications could be catastrophic. I’m talking 2008 type stuff. If Powell decides to get real on fighting inflation, he’s going to destroy the economy while refusing to recognize the real causes of the problems in the labor market.
At least with the problems leading up to 2008, it was easily apparent as to what was causing the problems. The conundrum this time around is not being properly observed. The fed and monetary authorities are dosing the monetary markets with the wrong type of medicine.
With regards to the rental market as you observe and ask; it will remain to be seen what happens. Rents have risen much higher than the overall inflation rate and are due to take a breather, so any weakness in the rental market shouldn’t be viewed as a sea change in the dynamic. Nevertheless, I think you and I should keep a close eye on the overall population levels to see if perhaps the people are beginning to die off. We definitely need to keep an eye on the labor force participation rate as well.
I currently cannot come up with any other answer, and certainly no one in the mainstream press has provided any other sensible theory. I submit that the DoDs mRNA injections are doing what they’re supposed to do. They’re sickening the population and on the margin it is having a very profound effect on the wage market.
The three different faces of Jerome Powell
The sobering impact on the financial markets could be dire. If the Fed fails to address what’s really causing the labor markets pains, it’ll just be dousing a burning fire with more gasoline.
Here’s my conclusion and it is a sobering one. The current set of problems that are causing inflation are not addressable with traditional monetary policy.
Earlier this year at a post-FOMC meeting press conference, Jerome Powell flippantly commented that he reckoned the Fed was close to neutral policy, and that was 125 basis points ago. At the next FOMC-meeting press conference, I observed a rather confused and indecisive Powell. During this week’s post-FOMC meeting press conference, I observed Jerome Powell acting as a determined and hypervigilant inflation hawk. Three different Jerome Powells, and I am incredibly disturbed with the last one I saw.
After reviewing the prior three post-FOMC meeting press conferences, I observe three different Jerome Powells, and while one may write it off to incompetence or cluelessness, the ramifications of this ostensibly ever-changing policy narrative can have catastrophic ramifications for all of us, including all the participants in the asset markets.
Powell’s misguided and sudden hypervigilance regarding inflation is coming at the worst time. The macro data indicate that inflationary pressures are already subsiding and we are on the back end of the curve. The people are also dropping out of the labor force despite rising wages and this should be the other way around. At some level I have to believe this is all being done intentionally.
Don’t ask me where I think we should hide. I don’t have an answer. But one thing is simple. You and I already know why people are dropping out of the labor force, so at least we’re not making financial and personal choices based on lies. Going on three years now, the monetary authorities seem intent on carrying out the most misguided monetary policies in history. I submit that a confused Powell and Fed could raise rates even higher than the most vigilant hawks are claiming. Why? Because the problems plaguing the labor markets are not addressable with interest rate and Central Bank asset balance sheet policies. But the Fed will kill us trying to figure it out.