Inflation, interest rates and the US economy, instead

I feel bad, ignoring the US economy – which we are being told all over the joint is humming along beautifully, following the results from the non-farm payrolls survey:

Nonfarm payroll employment increased by 132,000 in June, and the unemployment rate was unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment rose in several service-providing industries, while manufacturing employment continued to decline. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.

The Wall Street Journal loved it.

…the U.S. economy seems to be enjoying a Goldilocks moment — not too hot, not too cold — after a few quarters of subpar growth and a few flickers of uncomfortably high inflation that conjured images of the 1970s.

Some skepticism can be found, though (the Economic Policy Institute also had a good write-up). The jobs gain still suffers from two problems, for my liking: first, the ongoing disagreement between the two surveys, the household and the payroll surveys. Second, the numbers we do have keep getting bloody revised. I’m not celebrating results this week that are going to disappear in a fortnight. Sorry.

Coming off the Australian numbers will of course make me snotty about it – 132,000 in June? Does that even cover new entrants to the work force (see, snotty. It’s not 3% growth in employment). Even the Bureau of Labour Statistics is with me:

Both total employment (146.1 million) and the civilian labor force (153.1 million) were little changed in June. The employment-population ratio (63.1 percent) and the labor force participation rate (66.1 percent) also were about the same as in May.

Meanwhile, for all the talk about Full Employment in the US (at 4.5%), real wages are still doing their thing: not moving.

Average hourly earnings of production and nonsupervisory workers on private non-farm payrolls increased by 6 cents, or 0.3 percent, in June to $17.38, seasonally adjusted. This increase followed gains of 4 cents in April and 7 cents in May. Average weekly earnings grew by 0.6 percent over the month to $589.18. Over the year, both average hourly and weekly earnings rose by 3.9 percent.

Certainly, wages aren’t being pressured enough for the Federal Reserve to increase rates yet – and a rate cut is definitely out of the question (American home-owners, your interest rates are, however, also going to go up before they go down – especially if your Fed wants the dollar to stay popular while the rest of us well-performing economies are raising our interest rates). What pressure appeared to be building may even be dissipating:

Big Picture wages...picture

That graph is actually being hosted by the Big Picture. Don’t get me wrong, these aren’t bad numbers, particularly, just badly-read. The reliability of the numbers themselves make me disinclined to do a great deal with them, and the incongruous elements within the numbers ought to be the topic of debate, not the wonder of the modern American bloody economy. The EPI’s conclusion is as good as any up with which I could come:

Outside of restaurants, the only private sector gains came in health and education, sectors that do not typically respond to underlying weakness in the economy. Wage pressures are subdued, and diminished labor force participation rates, especially for minorities, also suggest cyclical weakness. None of these observations suggest recession, but neither do they suggest that the labor market is safely out of the economic doldrums.


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