Today’s monthly BLS employment report had a huge surprise 266k increase in jobs. Normally this would be inflationary, thus ruining the value of bonds. Yet the yield on the ten year Treasury rose only 3 basis points (that’s 3/100ths of a percent) to 1.83%. Gold went down 1%, indicating the market doesn’t believe the jobs increase is inflationary.

    The key to inflation is when banks lend money that increases the money supply, causing inflation. (Also it can be caused by the central bank monetizing the debt, which is not the case right now, although it could be in future decades. QE as done by most countries is not true “spendable” debt monetization.) To lend money the bank examines the borrower’s income. If the income is weak, spotty, unreliable or too low to afford the debt payments then no loan is granted and thus that person doesn’t cause inflation.
These jobs are being given to minimum wage unskilled labor. These type of people often have a sketchy work history, bad credit, no reserves and thus can’t qualify for a loan. Also, if society has too much debt then even if bankers are willing to loan, a consumer may refrain from consumption because he is committed to paying down his debt. The ratio of debt to GDP suddenly doubled in the 1990’s and is still growing, slowly. Thus consumers are constrained from taking on more debt and thus the current jobs increase is not a threat to bonds.
The best test about this topic would be the quality of jobs rather than the quantity, meaning a test for an increase in real wages. Normally at the of an economic cycle employers engage in a bidding war for workers making real wages increase substantially. Today there is no such bidding war. The BLS said real weekly average earnings are up 0.9% YoY and only 0.6% a year since 2009. One would think the rebound from a deep crash in 2009 would have resulted in a much higher increases in wages since 2009 – amazing! The change from the ten year figure to the one year figure is only 0.3% real, hardly an the type of increase expected during a labor market bidding war.
Fundamentally the working class of Developed countries is deeply hobbled by the outflow of good jobs to low cost EM countries and this trend will last for decades. The best way to see if there was true labor boom would be if anecdotal news items showed that employers were closing down jobs in EM countries and bringing them back home and they were quoted as saying “I’d rather pay 10 times higher wages in order to get the result I want”. Has or will anyone ever say that?
Employment data is misleading because someone can accept a tippable job like a waiter and get a minimum wage of $2.50 an hour. Temp and part time work is also counted as a “job”. I believe only “real” jobs (something full time, with a decent base wage instead of tippable, contingent income) should be counted.  I propose the BLS develop a “trimmed mean” jobs measure that excludes the lowest decile of wage earners as well as excluding part-time, temp, independent contractors, people with sub-minimum wage tippable jobs, etc.
What may have happened is that hard core unemployed people came back into the labor force to work in an independent contractor position like an Uber driver and maybe earning less than minimum wage once a proper accounting of their expenses has been done. To qualify for a loan, if a person is self-employed or tippable, the applicant needs two years current, stable income with no gaps, etc. Most likely these newly hired people don’t qualify for loans, thus they won’t be causing inflation.
As for the risk of full-on debt monetization, I suspect that if politics returns to the era of 2011 with a Democratic president and a significant Republican majority in Congress there will be a revival of the Tea party, hard money, anti-deficit movement thus reducing the odds of a catastrophic inflationary central bank debt monetization. QE can only cause inflation if it is an MMT Corbin-style “People’s QE”. The QE of most countries results in wealthy people selling their bonds to the central bank (via the operations of Primary Dealers) and then they merely use the new cash to make investments, rather than to consume, thus the QE funds are trapped in rich people’s brokerage accounts instead of being spent on consumption or on investment in soundly underwritten new business ventures. Investing in irresponsible pseudo-tech companies that lose money is not a sustainable way to create jobs or inflation.
Investors need independent financial advice about the risks of inflation and bonds.