Today the monthly Employment Situation report was released by the BLS showing a huge 312,000 increase in jobs in the payroll survey. The unemployment rate increased from 3.7% to 3.9% as more people decided to join the work force and seek employment. Fundamentally, because the unemployment rate increased, that is the bottom line: new entrants to the labor force acted to dampen inflation by increasing the supply of workers. The household survey said 419,000 jobs were added with 90% of the total job increase from unincorporated self-employed. That type of “employment” can be a zero income gig experiment rather than a traditional real job.
Prime age employment shrank by 11,000, with a 48,000 decline the month before. 146,000 of the jobs increase in the household survey was from people aged 18 or 19 years, implying lots of rookie minimum wage workers entered the labor force.
To create inflation these new workers must be able to qualify for a bank loan that expands the money supply. But underemployed newly self-employed people and minimum wage 18 year old new workers can’t qualify for a loan since that requires a two year work history, etc. This increase in jobs is not inflationary.
For several years there have been many scholarly news articles written demonstrating the deep crash of 2008 created a hidden discouraged pool of unemployed people so that the true rate of unemployment is roughly 1.5% to 2.2% more than the official rate. That means a 5.5% or higher rate might be the true rate, which is not inflationary. The fact that the unemployment rate actually increased despite new jobs bears this out. It is shocking that most of the increase was either minimum wage rookie workers or newly self-employed unincorporated businesses that likely have no income. The fact is 70% to 90% of new small businesses fail, thus in my opinion the BLS ought to discount 80% of the increase in self-employed; if so then 80% times 90% of the 419,000 household survey increase should be deleted, thus reducing the household increase to 117,000, then subtract roughly 100,000 or even 125,000 to adjust for population increase, in which case the job increase was a big fat zero! Note: no one calculates jobless rate adjusted for population increase, so ignoring that then the new job increase was 117,000 which is below average and very weak since most of the wage based jobs went to 18 year old rookies.
163,000 of the 301,000 private sector jobs in the Payroll survey were in low wage retail, leisure industries, etc. These low wage industries like leisure increased pay by 4.3% annualized last month. If you give a minimum wage person a 4% raise that’s simply a drop in the bucket that won’t help them to engage in inflationary consumption or in getting a loan that creates inflation. The YoY wage trend is 3.2%.
Bonds are still a good buy since the global economy, despite currency risks, exerts an integrated global gravitational tug on yields that act to pull down the outlier country’s yield (the US) to reach the global average. With Japanese and German rates negative then where else in the Developed world, in a major country, can one buy investment grade bonds that actually yield 2.5% or 2.98%?
Investors need independent financial advice about the risks of being fooled by misunderstood labor market data.