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Larry Lindsey

President & CEO, The Lindsey Group

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Celebrate tight labor market, but don’t cut interest rates

Mar 18

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While President Joe Biden has been celebrating U.S. economic success, many Americans are still unhappy about the economy. So who’s right? The most recent jobs report for February showed that while the unemployment rate rose slightly to 3.9%, job gains were higher than expected, with the total coming in at 275,000 versus the expected increase of 200,000. This data suggests there has been confusing growth of both jobs and unemployment at the same time.

Straight Arrow News contributor Larry Lindsey takes a closer look at the latest employment report numbers, attempting to clarify some of the data. He highlights the rosy job creation scenario of the part-timers and how these workers affect the employment situation.

Then came the question about, ‘Aren’t these part-time jobs?’ Well, it turns out there are two types of part-time jobs. One is people who are put on part-time because of slack economic conditions for various economic reasons in the company. Well, the number of people who are on part-time work because the businesses didn’t have enough business actually dropped by 46,000. Part-timers who are part-time by choice rose by 158,000. A lot of people don’t want full-time jobs. So we now have a labor market where people can work part-time or full-time of their choosing, and there is no real pressure on people being forced to work part-time because the economy is weak.

The rate of unemployment did tick up from 3.7% to 3.9% but that was almost entirely due to young people dropping out of the labor force or choosing not to work for some reason. The number of people under 25 who are reported working dropped 466,000. But the number of people over 25 who are working rose 328,000. If you have a lot of younger, mostly part-time workers dropping out, perhaps because they went back to school, but you have solid growth of employment for middle-aged people, that’s another sign of a very strong economy in a tight labor market.

Everyone’s concerned about the state of the labor market. After all, that’s where we get our jobs that pay our bills. The news right now is very good. There were expectations that the February employment report would be a surprise to the downside, showing softening in the economy. January’s number was considered to be aberrantly. High. Well, they did cut January’s number to a mere 229,000 jobs created. But that was nothing more than the average of the last 12 months hardly weak. And the February number was even higher 275,000 jobs. Job creation is now growing at a rate that’s twice the rate of growth of the civilian labor force. If the number of war bodies coming in, is swamped by the number of jobs by a factor of two to one, you know, you’ve got a tight labor market situation. Then came the question about aren’t these part time jobs? Well, it turns out there’s two types of part time jobs. One is people who are put on part time, because of slack economic conditions for various economic reasons in the company. Well, the number of people who are on part time work, because the businesses didn’t have enough business actually dropped by 46,000. part timers who are part time by choice, rose by 158,000, a lot of people don’t want full time jobs. So we now have a labor market where people can work part time or full time of their choosing. And there is no real pressure on people being forced to work part time, because the economy is weak. The rate of unemployment did tick up from three, seven to three, nine. But that was almost entirely due to young people dropping out of the labor force, or choosing not to work for some reason, the number of people under 25, who are reported working, dropped 466,000. But the number of people over 25, who are working Rose 328,000. If you have a lot of younger, mostly part time workers dropping out perhaps because they went back to school, but you have solid growth of employment for middle aged people. That’s another sign of a very strong economy in a tight labor market. Total payrolls in February rose six tenths of percent month over month. That’s a 7.4% annual rate of growth, very, very strong, and certainly not one consistent with a 2% inflation rate. Not only that, the people who are gaining jobs are the people who do the work and not the people who supervise them, the number of supervisors employed and the pay, they got declined. On the other hand, of what they call production and non supervisory workers rose a full half percent in the goods sector, and two tenths of a percent in the services sector. Looking at that part of the composition of the labor force, total compensation Rose 1.3% in a single month for production and non supervisory workers. In some we have a very solid labor market. There aren’t any signs of it falling apart. People say it’s softening Well, maybe it’s softening from an extremely hot pace to a merely very warm pace. But it’s enough to provide everyone jobs, everyone incomes and plenty of money to be spent going forward. Fortunately, we have a tight labor market. I think if the Fed ends up cutting rates, what you’ll see is a situation even get getting tighter, and possibly the RE imposition of inflation on the economy. You can’t have more jobs than you have people willing to do the work that pushes up wages and it pushes up prices. So we should celebrate the tight labor market and not try and make it even tighter by cutting interest rates further. 

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