Jobs: What We Learned Friday
It is instructive, especially on Labor Day, to ponder over the message that the latest jobs numbers released Friday convey to financial markets. The US economy created only 235,000 jobs in August, a major disappointment compared with the more than 700,000 that had been expected. The August number was also a big fall from the 962,000 jobs created in June, and over 1 million in July. Is the economic recovery coming to an end?
President Joe Biden reacted quickly to the jobs numbers, blaming faltering employment creation on the outbreak of covid’s delta variant. He and the markets already had a premonition of Friday’s figure when ADP numbers published earlier in the week showed that the private sector created only 374,000 jobs last month, compared with over 600,000 that had been expected.
The President is correct in suggesting that the delta variant was a factor in the stalling labor market. This is also the message that Fed Chairman Jerome Powell has attempted repeatedly to convey in his speeches, including to the Jackson Hole summit on August 27. There are signs that some employers were restrained in their hiring due to the uncertainty created by the delta variant even as some of the employees hesitated to go to work due to fears of the virus.
But to blame the jobs situation exclusively on the pandemic would be wrong. Such a conclusion would also give policymakers the wrong prescription on what to do next.
A clue to what else may be behind the jobs figure comes from the same report published by the US Bureau of Labor Statistics (BLS). Average hourly earnings (AHE) of all workers increased by 0.6% month-on-month in August accelerating from a 0.4% increase in July. When viewed as change over the past year, the increase was 4.3% last month, up from 4.1% in July. While job creation slowed, in other words, those who had jobs were able to command higher wages. Some of this translated into higher prices.
A similar story is told by the JOLTS report which is also published by the BLS. Job openings in June (latest month) shot up to over 10 million, far exceeding consensus expectations. Employers had, in fact, been trying to hire workers to meet rising consumer demand but were unable to fill the positions. In addition to the delta variant, a major stumbling block was that those who were looking for positions did not have the appropriate qualifications.
Way back in January, I discussed in a SriKonomics piece that training workers to adapt to sectors where jobs were available should be an essential component of economic policy. To direct a significant portion of the $3.5 trillion spending bill passed by the House of Representatives to provide benefit payments to the unemployed and to parents staying home to take care of children would do little to make them more employable by developing new skills.
Furthermore, if the delta variant is not the end of the road for the covid crisis, will the Biden administration propose yet another $3.5 trillion of benefit payments? Where would all this lead the economy to?
It is not only fiscal policy that does not have an answer to this pressing issue. Powell’s Federal Reserve is also focused on responding to every new health crisis with further monetary easing and continued near-zero interest rates. It is not surprising that a combination of doubling central bank assets over the past 18 months, massive fiscal stimulus, and a skill mismatch in the labor market has resulted in inflation rising to levels not seen in decades.
Drilling a square peg into a round hole does not solve problems. It worsens it.
Dr. Komal Sri-Kumar
President
Sri-Kumar Global Strategies, Inc.
Santa Monica, California
srikumar@srikumarglobal.com
@SriKGlobal
September 6, 2021
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