Cogito Ergo Non Serviam

US Unemployment Rate Falls to 4.9%

The Nonfarm Payroll Report came out this morning giving the markets a snapshot of the employment picture in January. The American economy added 151,000 jobs, which was down markedly from 292,000 jobs created in December. However, it was sufficient to reduce the unemployment rate to 4.9%. Coupled with last month's GDP figures, showing a growth rate of just 0.7% for the fourth quarter of last year, the drop in the jobless rate is misleading. The US economy is not really booming these days.

Reuters reports, "Data for November and December was revised to show 2,000 fewer jobs created than previously reported. Economists polled by Reuters had forecast employment increasing by 190,000 in January and the jobless rate steady at 5 percent.

"Also taking the sting from the softer payrolls number, employers increased hours for workers. Manufacturing, which has been undermined by a strong dollar and weak global demand, added the most jobs since August 2013."

All the gains were in the private sector, which added 158,000 jobs, dominated by the services sector with 118,000 of those jobs. Meanwhile, the mining sector lost 7,000 jobs, as did the government sector. There will be further pressure on jobs in the future as the energy sector has announced more than 20,000 jobs cuts looming. Retail also will experience some drag with Walmart and Macy's closing dozens of store, although the sector did add 57,700 jobs this month. Temporary work, a bellwether of future hiring as temp jobs often turn permanent, offered further grounds for pessimism with a 25,200 fall. The participation rate remains near historic lows at 62.7%.

All of this suggests that there is absolutely no sign of an economic boom that needs cooling. The unemployment rate is a weird statistic that doesn't measure how many of the 37.3% who make up the "non-participation" rate. Its month by month moves of 0.1 or 0.2% don't tell much of a picture. Its utility is in comparing one year with another.

Despite this economic softness, there are some who claim the Fed may still be planning another rate increase in March. This would be reinforcing a bad decision, the initial rate increase in December. It would be great if the economy were booming so loudly that the inflation rate needed to be reined in. The economy isn't even close to the 2% target rate the Fed has set for itself (and which this journal believes is too low anyway). An increase in March would be folly.

There is one good bit of news beyond the unemployment rate breaking below 5% and that is the increase in the hourly wage. It rose by 12 cents, or 0.5%, to $25.39, which Greg Anderson at BMO Capital Markets described as "shockingly good."

If the Fed really wants to get inflation up to 2% and maintain that rate, wages are going to have to rise dramatically. Inflation comes from too much money chasing too few goods. Billionaires can only buy so many ivory-handle back-scratchers. New cars, household appliances, food, fuel and entertainment is what the average Joe buys, and that's the very definition of economic activity.

However, the Fed has done just about all it can (the foolish rate increase aside). The big weapon in the fight for economic prosperity is fiscal policy, which Congress and the White House control, not the Fed. Unless and until the government starts spending billions upon billions on infrastructure projects that will benefit the American economy for the rest of the century, this is about the best things can be. Rather a shame, really.

© Copyright 2016 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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