The monthly nonfarm payroll report was released today showing a 128,000 increase in employment. Since employment needs to increase by roughly 100k to 125k a month to offset population and immigration increases then the “real” population-adjusted gains were a token 10k or so, which would be an annualized rate of 0.08%, which is almost a zero percent increase. Also, the pool of available workers was reduced by 41,000 last month. 80% of the job gains were in dead-end minimum wage type of work, the other 20% in secure industries like health care or civil servants where employers have a greater stability of cash flow to enable hiring even in a weak economy.
Bond yield increased by only 2 basis points for the ten year Treasury, implying the market thinks the jobs increase was a weak event.
The dominant economic paradigm is globalization taking away good paying “real” jobs from Developed countries and moving jobs to poor EM countries. This is disinflationary. There are few cases of evidence where these jobs came back to Developed countries and plenty of evidence the trend of losing jobs will last another few decades. Add to that smaller trend for 200 years, of commodities getting cheaper through new technology, which adds to disinflationary pressure. Thus the case is strong that we aren’t headed for a robust high-growth inflation causing economy.
One cheery note is that the political talk and actions about using trade barriers and negotiations to stop EM countries from unfairly undermining our economy may have given hope to U.S. workers, causing them to renter the work force and try harder to find a job. This could explain why such a high percentage of new employment was in low-end minimum wage type of work. Let’s hope those people get the break they need and later get a real job.
The problem with employment data is if someone works as a waiter or Uber driver they way legally be working for less than the minimum wage and if part-time they are counted as employed. So a despondent job seeker signing up for part-time waiter’s job gets $2.50 an hour plus tips, or $10 a day plus tips for a high time job. How can anyone live off of $10 a day? They sure won’t be able to cause inflation.
What economists and professional investors look for in employment are signs of people getting a good, full time, stable job, a “real” job. These are an endangered species, getting more scarce every year. A substantial increase in these jobs are what would lead to inflation. Increasing minimum wage jobs won’t lead to inflation because they are like a little experimental 1903 era airplane that lacks horsepower to gain lift and fly. Inflation is caused by bank lending increasing the money supply which requires passing underwriting standards of gaining a good, real job. Inflation can also be caused by the Fed monetizing the Treasuries debt, which requires no underwriting.
An article I read mentioned that a “Medicare for All” program proposed by some politicians would destroy 2,000,000 jobs, mostly good paying ones that can’t be done offshore. Also tax increases would act to dampen inflation. Thus if the country moves towards that then the jobless rate might become worse. Assuming the economy has gone too long (the longest ever) without a recession then eventually the cycle of expansion of jobs will come to end, further supporting my disinflationary outlook.
Despite my forecast of low, stable inflation, it is possible the fever of low yields has run its course in terms of foreign central banks cutting rates to negative numbers, and it has run its course domestically where experts are slowing awakening to the damage caused by ultra-low rates. Monetary policy (ultra-low rates) is an alleged alternative to fiscal stimulation. Republicans like monetary policy in the hopes they can avoid using fiscal stimulus policies that encourage the growth of government’s size and debt. If political climate switches to favor the Democrats the policy makers may decide to give up on monetary policy and switch to a revival of their old-time cherished fiscal stimulation through bigger government policies. Thus I wouldn’t get enthusiastic about buying long duration bonds in hopes of making a capital gain; the risk-reward ratio looks unattractive and could be a setup to failure. I do like short term and mid-term duration investment grade bonds.
Investors need independent financial advice about the risks of inflation, bonds and stock market bubbles.