Following the May jobs report, economists have analyzed the recent surge in jobs in the U.S. economy.
Tyler Goodspeed, a former White House economist and Kleinheinz Fellow at the Hoover Institution at Stanford University warned of the most giant "red flags" in the report. While the labor market continues to add jobs, Goodspeed has expressed concern over a separate report based on a survey of households indicating a "softening labor market."
He explained that "the household survey showed a decline in employment of over 300,000 most of that was definitional, but nonetheless, the fact that that number declines makes the establishment sort of a bit of a head-scratcher."
Goodspeed also pointed out that "something to look out for on the wonky side" is inconsistencies in the report. He explained that "it tends to understate job gains early in a recovery because it doesn't account for new firms that have been born, whereas it also tends to overstate job gains at a turning point when the economy is really starting to slow down because it doesn't account for a lot of firms that die and drop out of the survey."
Peter Schiff, a chief economist and global strategist at Euro Pacific Capital, argued that employment growth numbers are "skewed" mainly due to Americans taking second and third jobs to combat inflation. He said, "I think a lot of people who are not losing their jobs are losing the value of their income to inflation are having to take extra jobs to make up for the income that they've lost on those jobs."
The May jobs report showed that hourly wages increased by 4.3% year-over-year, despite growth not keeping pace with inflation. Although wage inflation is bringing in workers, "it just makes the Fed's job of getting inflation back down to 2% a lot harder," Goodspeed noted.
The Federal Reserve is closely watching the report for evidence that the labor market is finally softening after months of solid job gains as policymakers try to wrestle inflation under control. Although the consumer price index has cooled from a peak of 9.1% in June, it remains about three times higher than the pre-pandemic average.
Goodspeed said the report comes with "bad news" concerning inflation. "The Federal Reserve... is probably going to be a lot more confident in the state of the labor market, and therefore, they're going to turn their attention much more to the other side of their mandate, which is bringing down inflation," he said. "Given where productivity growth is, the wage inflation kind of sets a floor below which it's hard for inflation to go. So I think that [the Fed is] going to probably tighten. They will have to stay higher for longer to cool demand in the economy."
When asked whether the report will prompt the Fed to pause or continue its aggressive rate hikes, Goodspeed said: "Probably 50/50 that they hike versus pause, maybe slightly leaning towards a hike." Schiff also believes inflation will remain "hot," but pointed out wage growth could rise if productivity increases.
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