Opinion: The Latest US Jobs Report Isn’t What It Seems

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We recently saw the release of the August US jobs report, where 315,000 jobs were added. These 315,000 jobs have become the main topic of discussion, as evidenced by the celebration of the report through the articles. It was an important political week when the report came out, with several campaign events across the country, and incumbent politicians were happy to add further strength to the report. It’s nothing unique to them; each administration uses the jobs report to congratulate what it has accomplished or at the beginning of its term to berate the previous administration for the situation it finds itself in now. The problem is that the noise and the kudos have become the comment of the week and eclipsed the details of the report; these details give a more worrying view of the economy.

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To many, 315,000 jobs sounds good, but when looking at the report, it first shows that full-time employment has declined. The number of people working multiple jobs increased by 114,000, while 225,000 people worked part-time because they could not find full-time work. It reads like people who need an income either have to get multiple jobs or a part-time job to make ends meet. If you worked multiple jobs to pay your bills because you lost your full-time job, you probably wouldn’t feel any better about your economic situation than you did the month before. The public, however, is told that these figures are a great success. These elements of the report suggest that people are working as hard as they can to make ends meet.

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The craziest thing about the response to the report is that most news networks also referenced it positively, mentioning that it gave the Federal Reserve the green light for another rate hike during the next meeting. We just saw this increase on September 21, when the Federal Reserve raised benchmark interest rates by 75 basis points. Another big rate hike isn’t going to help those struggling based on the August data. With the cost of car loans and mortgages still rising, we shouldn’t be surprised to see even more part-time jobs in the next report.

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Why then did the Federal Reserve seize this opportunity to raise rates again? This is to avoid structural inflation. The concern is that inflation becomes embedded in the economy and creates a wage-price spiral. Preventing this occurrence is a critical part of how the Federal Reserve measures success. “We cannot allow a wage-price spiral to occur, and we cannot allow inflation expectations to become unanchored,” Federal Reserve Chairman Jerome Powell said earlier this year. The wage spiral is precisely where the cost of living gets so high that workers demand much higher wages, and then companies have to charge more to keep making money, and more and more in an accelerated way until until the economy stops working efficiently. It looks super scary and worth avoiding. The problem is that wage growth was zero percent in the last jobs report, indicating that there is currently no wage spiral.

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Without the specter of a wage-price spiral, the Federal Reserve’s goal in maintaining them is to simply lower inflation reports. This is related to their mandate. The problem is that the main driver of inflation is currently energy. Higher rates have less of an impact on lowering energy prices at this time, as prices are pushed higher by several years of underinvestment in the energy sector. So we’re looking at an economic scenario this fall where people are barely getting by and the Federal Reserve has just increased the cost of their loans even more. I hope I’m wrong and that when the next jobs report comes out I can write an interesting summary of how and why I got my reading of the numbers wrong.

Mark Le Dain is Vice President, Corporate Development at Neo Financial in Calgary.

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