The Economy in Context: January 2019

The latest jobs report came out from the Bureau of Labor Statistics on Friday, and there is an unusual amount to unpack this month. There’s a lot of upside politically, such as the preliminary estimate of +312,000 net jobs created in December. That’s the second highest it’s been since Trump has taken office, and the fifth highest since 2013 (the top 3 highest occurred under Obama).

Labor force participation improved to 63.1%, tying the highest its been under Trump in September 2017, though still only 0.2 points higher than the 62.9% level it was at when Trump took office. This bump in labor force participation rate caused the unemployment rate to rise to 3.9%. This could be a good sign or a bad sign, depending on what it indicates.

Net job numbers for both October and November were revised upward to +274,000 and +176,000 net jobs created, respectively. Altogether, this would indicate a fairly strong quarter of job creation, 762,000 net jobs, presently sixth highest since the first quarter of 2013 (with the top 5 quarters all occurring during Obama’s presidency). Job creation is almost to Obama levels.

As rosy as the economic data seems, there’s still some pretty serious questions hanging over this economy. The trade war with China is still unresolved, and, the rally on the job numbers news and Federal Reserve Chairman Jerome Powell’s statement that the Fed would be “patient” on further rate hikes not withstanding, the stock market has had a rough go of things since October.

If the Federal Reserve isn’t going to raise the federal funds rate, it’s not because the economy is so strong. It’s very much the opposite. They see the economy as being soft, and they want to keep fiscal policy slack (or at least well below the long-term mean of 5.0%) keep capital liquidity high. Despite what many may say, this really isn’t a good sign for the economy at all.

The Federal Reserve’s reluctance to increase the federal funds rate is simply another indication that the economy is much softer than advertised. The days of Quantitative Easing are over, but no one is going to suggest that a federal funds rate of 2.5% isn’t a stimulative rate. Remember, the Fed dropped the federal funds rate to 2.25% in March 2008, when the recession got really bad.

Now, does this mean the economy is necessarily weak? It’s hard to say that. There’s a reasonable argument to be made that the White House wants to keep fiscal policy loose to benefit the investment bankers and fund managers that ultimately helped get him elected and had more than a little to do with Goldman Sachs executive Steve Mnuchin becoming Secretary of the Treasury.

My read, however, is that the economy is a lot weaker than advertised, and a lot of private capital is now going into keeping the economy afloat. The people who have the most to gain in keeping this aging bull market staggering forward are selling the latest numbers for all they are worth. I’m thinking we’re going to see these job numbers be ultimately revised downward.

Speaking of which, the Bureau of Labor Statistics also announced that they will be revising job numbers going all the way back to 2014 (and possibly further) using a new “annual benchmark process and updated seasonal adjustment factors“. My curiosity and skepticism are piqued, but we’re likely to see a lot of numbers move around in February. The question is for whose benefit?


Liberty is For The Win!

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