Friday, December 4, 2015

The Paradox of a Good Jobs Report

The top-line numbers in the jobs report today were pretty good:

* 211,000 jobs added (prior two months revised up 35,000)
* Unemployment steady at 5.0%
* Wages up 2.3% over last year
* Labor force participation rate up one point to 62.5%

That's why this headline at  Politico made my head turn a bit: Strong Jobs Number Holds Risks for Clinton. The authors, Ben White and Timothy Noah, were referring to the much-dreaded Fed interest rate hike.
The era of easy money is about to end. The 211,000 jobs created in November make it all but certain the Federal Reserve will begin raising interest rates later this month — a move that could imperil Hillary Clinton’s hopes of winning the White House if the Fed inadvertently triggers a sharp economic slowdown.
Of course, if the jobs report had been terrible, they could have done something very similar and said that a slowing economy under the leadership of a Democratic president could imperil Clinton's hopes for winning the White House. So you see...they get her either way.

This has been the paradox of every jobs report for the last few months: good news on jobs means bad news on interest rates - or vice versa. That's why I found Jared Bernstein's reaction today to be very interesting. this point, were they [Feds] not to raise, it would be downright weird, odd, and inconsistent with forward guidance (telegraphing their important punches). Even while I do not see much rationale for an increase, especially given elevated underemployment and the stark lack of inflationary pressures, given their recent messaging, a non-liftoff in December would suggest the economy is a lot worse than they thought in some secret way they’ve been keeping from us. Such a negative surprise would be ill-advised.
To the extent that a lot of the economy is about expectations, this is a really good point. Can you imagine the nervous chatter that would ensue if the Feds didn't raise rates after all the signaling they've been doing about it?

We've all been wringing our hands over a hike for an awfully long time now. Call me crazy, but I expect that a lot of the reaction to an increase has already been cooked into the books. Perhaps it's time to just do it and move on. Here's Bernstein on that:
I know she hears way too much unsolicited advice from way too many people, but if I’m Chair Yellen, my message to the hawks is: “OK, you got your rate liftoff even though the data weren’t really there for it. Now back the @&$! off and let’s go back to being data driven about future increases.”

1 comment:

  1. If interest rates rose a few points, we could keep up with inflation with our savings. Might also help bring house prices down in our overheated market.