Unemployment Report: No Recession, but Rate Increases May Be Delayed
Today's unemployment report is unlikely to signal a looming recession, but it could deter the Fed from further interest rate increases.
The Federal Reserve's decision to raise interest rates could lead to a recession, according to today's unemployment report. The report shows that the Fed's policy is likely to lead to higher unemployment, especially for vulnerable groups. There is no indication that the Fed will change course in light of this new information.
Despite a slight uptick in unemployment, today's report from the Bureau of Labor Statistics shows that the labor market remains steady. With an average of 3.6% unemployment over the last three months, and a modest increase in jobs, it appears that the market is holding steady. However, with average hours worked remaining unchanged over the last four months, it is clear that there is still room for improvement.
Today's report does not signal more inflation, as average hourly earnings have actually risen 5% over the last year when adjusted for inflation. This report provides data on real wages, which are a better indicator of economic health.
The most recent Consumer Price Index (CPI) report for August showed overall inflation rising at 8.3% annually. Core inflation, excluding energy and food, rose by 6.3% over the year. The CPI report for September will be released on October 13, and that is the more relevant data for the Fed, and for worrying about a recession. A recession is defined as two consecutive quarters of negative economic growth, and many economists believe that we are already in a recession.
The report shows that wages are not keeping up with inflation, despite a nominal 5% annual increase. This means that in real terms, wages are actually declining. This is a worrying trend, as it suggests that workers are not seeing their standard of living improve, despite increased economic activity.
The Dallas Federal Reserve's recent report on declining real wages is a troubling sign for the economy. The report found that median wages have declined by 8.5% in the past year, and that almost 47% of workers have experienced wage declines. This is an unprecedented level of wage decline compared to other periods in recent decades. This is troubling news for workers and for the economy as a whole. declining wages mean that workers have less purchasing power, which can lead to slower economic growth. Additionally, wage declines can contribute to income inequality. Policymakers should keep an eye on this trend and consider policies that could help boost workers' wages. Such policies could include raising the minimum wage, providing targeted tax breaks for businesses that raise wages, or increasing funding for job training and education programs.
The Federal Reserve is planning to keep interest rates high in order to fight inflation, even if it means causing a recession. Chairman Jay Powell recently testified that the Fed would keep raising rates until they saw a “modest” increase in unemployment and “clear evidence” that inflation is falling. This policy could have a significant impact on the economy, and it will be interesting to see how it plays out in the coming months.
For economists, unemployment is a lagging indicator, which means that it usually follows changes in other macroeconomic variables, rather than leading them. This makes it a poor indicator of recessions. Stronger economic growth leads to more jobs, and when the economy slows, there is usually a lag time before employers start cutting jobs.
It's time for the Fed to stop caving to pressure and instead do what's best for the economy - even if that means weathering some short-term criticism. Baker and Stiglitz are right that inflation hasn't been coming from wages, but from commodity prices. However, these prices have been trending down recently, so there's no need for the Fed to bring on a recession in order to fight inflation.
A recession will have a disproportionate impact on the poorest and most vulnerable workers, according to Baker and other economists. The AFL-CIO's Chief Economist Bill Spriggs has warned that "black workers are the canary in the coal mine" when it comes to recessions, and that they will be the first to suffer from any economic downturn. This is a worrying trend, and one that needs to be addressed urgently.
The Fed's interest rate cuts will disproportionately hurt lower-income workers, Blacks and Hispanics, as higher commodity prices driven by Russia's Ukrainian war and OPEC's refusal to cooperate with President Biden take effect. This is yet another example of how the Fed's policies benefit the wealthy at the expense of everyone else.
The Fed's decision to increase interest rates is a misguided attempt to combat inflation. This move will only serve to hurt workers and stifle economic growth. The Fed needs to reevaluate its approach and implement policies that will actually benefit the economy and workers.