Today’s jobs report is bad to the bone.
How can it be bad to the bone if the U3 unemployment rate fell to 5.1%? That number is music to The Fed’s ears in their quest to raise their target interest rate!
But what is bad to the bone? How about “not in labor force” exceeding 94 million and labor force participation at 62.6% (meaning that NON-participation in the labor force is 36.4%.
Average wage growth rose to 2.2% YoY, but is still almost half of what is was in 2007. The “good” news is that while still considerably lower than in 2007, average wage growth and the employment to population ratio are SLOWLY rising.
And jobs added (173k) was less than the expected 217k.
But the Richmond Fed’s Jeffrey Lacker says it is time to raise rates anyway!
Here is Lacker’s speech entitled The Case Against Further Delay.
Economic data suggest that an increase in the Fed’s target interest rate from near zero is warranted sooner rather than later.
With nominal short-term interest rates close to zero and inflation of at least one percent, real interest rates have been negative for the better part of the past six years. But with rising growth in personal consumption and income over the past couple of years, negative real rates are unlikely to remain appropriate.
The unemployment rate has declined nearly to pre-recession levels, and research suggests that there is little if any excessive slack in the labor market. Consistent with the Fed’s forward guidance, many labor market indicators support the case for an increase in interest rates.
Inflation has been below the Fed’s 2 percent target since early 2012, but has been running slightly above target over the past half year. Because inflation is a lagging indicator, maintaining low interest rates poses serious risks.
Recent financial market volatility is unlikely to affect economic fundamentals in the United States and thus has limited implications for monetary policy.
Hmm. Core inflation, The Fed’s preferred measure, has been falling since 2012 despite The Fed’s 3rd round of quantitative easing.
The Dow dropped like a rock after the jobs report (down over 250 points).
This is the “good news” that may lead The Fed to raise rates at the next meeting.