Fed Hike Ahead

5 January 2018

Cogito Ergo Non Serviam

Non Farm Payrolls Disappoint, Economy Just Fine

December's employment numbers came out earlier today, and the 148,000 jobs created in the month was less than the anticipated 180,000. The unemployment rate held steady at 4.1%. November's number was revised up to 252,000 from 228,000, but the difference was more than canceled out by the October downward revision to 211,000 from 244,000. Despite the soft headline number, the economy is healthy, and the Fed is set to hike rates in March.

The best news is the historically low unemployment rate for African-Americans at 6.8%. At a time of income inequality, having as many people as possible on the income ladder is vital to overall social health. Incomes by race continue to vary, naturally, but a fall unemployment rate for African-Americans is the sine qua non for greater harmonization of racial groups' incomes.

Other bright spots were the jobs added in healthcare (31,000), construction (30,000) and manufacturing (25,000). Government contributed 2,000 jobs. Hourly earnings ticked up 0.3%, after rising a third of that in November. Year-over-year, hourly earnings are up 2.5%. With unemployment so low, and with a corporate tax cut coming, there is a case to be made for more rapid wage growth. However, this journal doesn't yet accept that the tax cut will have much of an impact on anything but stock buybacks and more M&A activity.

On the downside, retail lost 20,000 jobs despite the holiday shopping season. That is just a testament to how bad things are in the brick-and-mortar side of the business. Warehousing was up 67,000 jobs for the year, and Amazon is the biggest warehouser as well as the biggest in retail sales.

The Fed is probably going to leave rates alone this month and increase them in March. The FOMC will get a bit more data to justify the rise by waiting. However, this journal takes the view that the Fed's 2% inflation target is too low for reasons ranging from terrorism to climate change. It's just better to run the economy a little hot because inflation is much easier to fix than deflation. The rate increase in March will start to work against the expansionary fiscal policy from Congress, and once again, America will be pushed one way and pulled another. Had the Fed and the Republican Congress not been working at cross purposes the last decade or so, the world would be much better off than it is.

A final point. The jobs report brings the total number of jobs created in the US in 2017 to 2.1 million. The Obama administration finished 2016 with 2.2 million new jobs. So much for bringing jobs back to the US.

© Copyright 2018 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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