Tight Labor Market Likely to Delay Fed Rate Cut Further – Currency Thoughts
Tight Labor Market Likely to Delay Fed Rate Cut Further
June 7, 2024
The 272 thousand increase last month in U.S. non-farm payroll employment exceeded market expectations by nearly 50% and comes on top of 238k per month job growth in the prior two months. Job growth per se needed delay a rate cut, but today’s report also included a 0.2 percentage point decline in labor market participation to 62.5% and the biggest month-on-month rise in average hourly earnings (0.4%) since January, which lifted its year-on-year increase to a 2-month high of 4.1%.
Taking all relevant economic information learned in the past couple of months, I’ve thought for some time that the Fed’s first rate reduction will well past midyear and possibly not until 2024. A political argument, in contrast, could be made that the Fed already should have eased. Polls already point to a Trump election win in November, and his policy priorities, such as import tariffs, budget deficit-building fiscal changes, and watering down the Fed’s independence, will raise inflationary risks not only in the coming four years but well beyond 2029 as well.
My final take-away from today’s U.S. labor situation report is the widening disparity between employment growth during the time when Trump was president and in Biden’s first term. When Trump took the oath of office in January 2017, there were 145.636 million non-farm workers in the United States, and that figure 40 months later had dropped to 133.04 million workers. That’s a net decline of 12.6 million jobs or 8.5%, and it works out to an average decline of 315 thousand jobs per month.
In Biden’s first comparable period (January 2021 to May 2024), non-farm payroll jobs advanced to 158.543 million, an increase of 15.6 million workers, or 10.9% and equivalent to 391 thousand job gains per month.
There are few more indicative measures of economic health than employment, and the comparative strength of employment growth with Biden could hardly be more stark than when compared to the Trump record. And yet, numerous opinion polls are providing feedback that the view of voters consistently rates the Trump economy as more successful than the Biden economy. How can that be? It shows the powerful influence of what people hear and read over what they see and feel personally, and it suggests that the internet and social media in particular are a vehicle that truly transforms image into reality.
President Biden has made the coming election a test of whether democracy will endure in America, if anywhere. It may be that future history will show that democracy and the creation of the internet are simply incompatible. A Pandora’s Box, once opened, cannot be shut.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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