The Bureau of Labor Statistics obliterated whatever cover the Federal Reserve may have had to give liberals and activist investors their ephemeral dream of a pivot away from the central bank’s interest rate hike campaign. Contrary to lackluster expert expectations of job growth, July saw an increase of more than half a million jobs, bringing the unemployment rate to a half-century low of 3.5%, according to the Bureau of Labor Statistics.
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For all that the White House fretted over redefining the definition of a recession to deflect from the country’s economic contraction in the first half of this year, the economy (and President Joe Biden’s) real problem isn’t that it’s cooling down too quickly; rather, the economy remains overheated in a suicidal state of stagflation, with inflation rendering any and all nominal growth increasingly meaningless.
Consider the farce of “wage growth.” The BLS reported that wages nominally increased by 5.8% in July and revised the June figure up to 5.4%. That would indicate that the economy is indeed spinning into a wage-price spiral even as, given our 9.1% inflation rate, real wages continue to fall. Furthermore, all the unemployment rate tells us is how many active job seekers are successful at attaining employment. Even though overall employment is approaching its pre-pandemic rate, it is millions of jobs behind how many the economy was projected to gain by now.
Why?
Our absolutely abysmal and historically anomalous labor force participation rate. Of course our unemployment rate will remain low when the denominator shrinks by the quarter-million adults who stopped looking for jobs entirely. All in all, the labor force participation rate remains more than a full percentage point lower than it was prior to the pandemic, in part due to boomers hastening retirement in response to dropping wages, but also due to parents — disproportionately mothers — forced out of the workforce thanks to union-orchestrated school closures.
The president and his allies will boast that July’s job creation, even if most of the jobs went to adults already employed and almost all of whom were already in the labor force, means that we aren’t in fact in a recession. That’s politically expedient for Biden, but not for liberals such as Sen. Elizabeth Warren who have been praying for Jerome Powell to ease off of his rate hike campaign.
To those who haven’t abandoned centuries of empirical economic fact for the religion of Magical Modern Monetary Theory, the jobs report was hardly surprising. Real interest rates remain highly negative, meaning that the Fed still has a ways to go before economic contraction is attributable to rate hikes themselves rather than the stagnating consequences of skyrocketing inflation. But according to the false dichotomy of monetary magicians, central banks must choose between tackling mounting inflation or a mounting unemployment rate. According to the BLS, employment isn’t a problem. Thus, the Fed should have no problem, politically speaking, morally or otherwise, bringing interest rates up to at least 4% in the back half of the year.
