U.S. Jobs Growth exceeded expectations in June by adding 222,000 jobs. Well beyond the anticipated 170,000 original forecast. The government also revised up its estimate of job growth for April and May by a combined 47,000.
However, the economic dissonance is still evident within the fed analysis:
[The] cycle of limited wage gains and low prices has kept inflation in check, to the consternation of the Fed, which wants to see slightly higher inflation to justify its campaign to raise short-term rates. (link)
As we previously shared there’s a predictable inability of federal economists to understand what happens when executive administrative policy reverses course and establishes the benefit to Main Street, ie. the middle-class, over Wall Street. The feds cognitive dissonance is evidenced because modern economic theory cannot reconcile the space between two economies, Wall Street and Main Street.
The three driving costs of operations -and their subsequent outcomes- are: labor, material and energy. In this phase of economic re-footing, material costs are static and energy costs have dropped substantially. Labor costs are slightly increasing, but not yet as a direct result of increases in wage rates. The current phase shows increased use of labor hours as part-time roles are increased to full-time positions.
♦ For most companies – Within this phase wage rates will remain modestly increasing until company labor productivity is filled and expanded labor hiring is needed. Once the number of necessary hires begins, the upward pressure on wage rates will increase much faster. But that doesn’t come along until phase #2.
Low energy costs are keeping consumer prices down, and this will continue while the expanding number of labor hours used fills out within each organization. We previously shared that the old paradigm of inflation driving interest rate hikes would no longer apply in this new economic space. Wages will jump, bigly, but that comes after the expansion of current labor resources is no longer possible.
♦ Right now the economy is adding more hours than people – Shifting PT positions into FT jobs as the economy expands. Additionally, people who couldn’t find FT work, and those who didn’t take PT jobs, are now reentering the workforce with FT positions open. This makes the ‘unemployment’ rate increase to 4.4% (up from 4.3%), despite the fact that an additional 100k jobs were gained than would be needed to retain stasis. More people are simply looking for work again because more FT work is available.
Retail employment gains of 8,000 were noted despite several retail companies no longer doing business. In our analysis this is because gains are in the highly-consumable retail companies (food, fuel, entertainment and hospitality), and the durable goods retailers (cars, furniture, appliances etc.) are, predictably, remaining static.
[…] The June jobs report showed broad hiring across numerous industries. Health care posted the biggest job gain — 59,100 — despite uncertainty around health care legislation in Congress. Governments added an unusually high 35,000 positions, nearly all of them at the local level. Construction companies added 16,000, and mining, which includes oil and gas drilling, gained 8,000. (link)
When we reach Phase #2:
♦ Inflation on imported durable goods sold in America, while necessary, will ultimately be minimal during this initial period; and expand more significantly as time progresses and off-shored manufacturing finds less and less ways to be productive. Over time, durable good prices will increase – but it will come much later.
♦ Inflation on domestic consumable goods ‘may‘ indeed rise at a faster pace, depending on energy offsets. However, it can be expected that U.S. wage rates will respond faster, naturally faster, than any fiscal policy because inflation on fast-turn consumable goods became re-coupled to the ability of wage rates to afford them as a direct result of President Trump’s economic policies. (read more)
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