Note: This post was first published on Patreon on 10 Jul 2018
Real quick here. I was out when the US jobs numbers came out on Friday. But they were good. And that’s particularly because the unemployment rate increased. Let me explain.
The Goldilocks scenario is one in which the employment picture is improving, but no so much so that it creates worries about inflation. And because wage growth underpins economic growth, we would want to see steady and rising wage gains that, again, do not raise fears about inflation. The last jobs report does just this.
The US economy added a relatively robust 213,000 jobs in June. But the unemployment rate ticked up slightly to 4.0% from 3.8%. This uptick in unemployment is a sign of slack in the labor market because it tells the Fed that marginally attached workers not previously counted in the headline unemployment numbers are re-entering the labor market do, ostensibly, to better employment prospects. In turn, the Fed is more likely to recognize that the headline unemployment rate overstates how close we are to full employment. And as result, the likelihood of more aggressive monetary policy is reduced.
If we can continue on this path for the months to come, the US economy will do well. This is as good as it gets. That’s my view.