Opinion: The latest U.S. jobs report is not what it seems 


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Recently we saw the release of the August jobs report in the US, which added 315,000 new jobs. Those 315,000 jobs became the main talking point, as evidenced by the celebration of the report across the articles. It was an important political week when the report came out, with several campaign events across the country, and incumbent politicians were happy to further underscore the report’s strength. This is not unique to her; Every administration uses the job report to praise what they have achieved or at the beginning of their tenure to chide the previous government for the situation they are in now. The problem, however, is that the noise and congratulations have become comment of the week, overshadowing details of the report; These details paint a more worrying view of the economy.

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315,000 jobs sounds good to many, but looking at the report first shows that full-time employment has declined. The number of people with multiple jobs rose by 114,000, while 225,000 people worked part-time because they could not find a full-time job. This reads as if people who needed income would either have to take on multiple jobs or a part-time job to make ends meet. If you worked multiple jobs to pay bills because you lost your full-time job, you probably wouldn’t feel any better about your economic situation compared to the previous month. However, the public is told that these figures are a great success. These elements of the report suggest that people are working as much as possible to make ends meet.

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The craziest thing about the reaction to the report is that most news outlets also gave it positive credit, mentioning that it gave the Federal Reserve the green light to hike rates again at the upcoming meeting. We only saw this surge on September 21st, as the US Federal Reserve raised interest rates by 75 basis points. Another big rate hike won’t help people struggling based on August data. As the cost of auto loans and mortgages continue to rise, we shouldn’t be surprised to see even more part-time jobs in the next report.

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Why, then, did the Federal Reserve seize this opportunity to raise interest rates again? It’s about avoiding structural inflation. The concern is that inflation will seep into the economy and create a wage-price spiral. Preventing this incident is a crucial part of the Federal Reserve’s measurement of success. “We cannot allow a wage-price spiral to develop, and we cannot allow inflation expectations to become unanchored,” Federal Reserve Chairman Jerome Powell said earlier this year. In the wage spiral in particular, the cost of living becomes so high that workers demand much higher wages, and then companies have to charge more to still make money, and so on and on in an accelerating fashion until the economy stops functioning efficiently . Sounds super scary and worth preventing. The problem is that wage growth was zero percent in the last jobs report, suggesting that a wage spiral is not currently taking place.

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Without the specter of a wage-price spiral, the goal of the Federal Reserve that keeps it going is simply to bring inflation reports down. This is tied to their mandate. The problem is that energy is currently the main driver of inflation. Higher interest rates are currently having less of an impact on lowering energy prices as prices are being pushed up by several years of underinvestment in the energy sector. So this fall, we look at an economic scenario in which people are struggling and the Federal Reserve has just raised the cost of their borrowing even further. Hopefully I’m wrong and when the next job report comes out I’ll be able to write an interesting synopsis of how and why I got wrong reading the numbers.

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Mark Le Dain is Vice President, Corporate Development at Neo Financial in Calgary.

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