GOOD NEWS FOR SOME AIN'T GOOD NEWS FOR ALL

The recent Jobs Report by the Bureau of Labor Statistics (BLS) is pretty much popping. While there’s clearly some areas we ought to be concerned about, the overall top line numbers are strong: During the month of July, the 528,000 gigs were added to the economy and, what’s more, the aggregate unemployment rate dipped to 3.5%, matching the rate in February 2020, which was a 50 year low. In terms of raw numbers, the economy has now clawed back all of the jobs lost during the recession, and the 528,000 figure in July’s report is twice as high as the 258,000 number of jobs that economists had been predicting.

The increase in gigs was across the board: Leisure and Hospitality experienced an increase of 96,000 jobs, while the number of jobs in Professional and Business Services, Health Care, and Government increased by 89,000, 70,000, and 57,000, respectively. More jobs also became available in such areas as Construction (32,000), Manufacturing (30,000), and Retail Trade (22,000).

And on top of all of that, the Jobs Report contains good news on the pay front: Average hourly earnings increased 0.5 percent during July and are up 5.2% over the past twelve months.

Overall, then, we’re looking at a strong report.

Curiously enough, though, there’re some who’ll see this as bad news. They’ll weaponize it and deploy in the interest of cooling off a labor market that they believe is running too hot. They’ll be at the ready to do whatever they deem necessary to slay the monster of inflation, even if that means tossing people into the pit of joblessness.

Take, for instance, some of the power players at the Federal Reserve.

JOBS NEWS IS TOO MUCH FOR THE FED TO STOMACH

With his eye on inflation, the most recent Jobs Report will definitely be more than Jerome Powell, chair of the Fed, can stomach. The last thing we need right now, according to the Fed’s reasoning, is an economy that’s cranking out half a million jobs a month and where workers have managed to get a few extra coins in their paychecks. With inflation running around at annualized rate of 9%, Powell and the folks at the Fed are bound to take the Jobs Report as unambiguous evidence that the labor market temperature is not merely hot but that it’s downright scorching.

The fact that this is happening against the backdrop of inflation and a two consecutive quarter decline in Gross Domestic Product (GDP) will only further convince Fed officials that the labor market is sizzling and that their Federal Open Market Committee (FOMC) needs to slam on the brakes before the party really gets started.

They’ll do this—slam on the brakes— the way they’ve always done it, and that’s by raising their benchmark interest rate. That, in turn, triggers rising interest rates for just about everything else you can imagine, including car loans, credit cards, home equity lines of credit, and bank loans. All of which raises the costs of borrowing and induces a slow-down in spending. This, of course, is supposed to cool everything down and return the economy to price stability.

Thus far, the Fed has jacked up its interest rate four times in 2022. In March, their benchmark interest rate was raised 25 basis point (1/4 of a percent); May 2022 saw a 50 basis point jump (1/2 of a percent), followed by a couple of 75 basis points (3/4 of a percentage point) in June and July.

They’ll meet next in September and, given the recent Jobs Report, I’m expecting an increase of at least 75 basis points and perhaps even a full percentage point.

Those labor market numbers are all the Fed needs to justify its determination to get back to an inflation rate of no more than 2% per year, even if that means placing at risk of joblessness some of the same people who got slammed by the medical and economic fall out of the pandemic.

All of which goes to show that good news for some ain’t good news for all.