A Decade-Low Unemployment Rate? But At What Price?

Secular Investor's picture

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The Bureau of Labor Statistics announced the updated employment situation results on Friday, and what appears to be very positive at first sight (and based on the headlines) actually might not be as good as it seems.

Yes, officially, technically and theoretically, 211,000 new jobs have been created in April, whilst the February jobs result has also been revised from 219,000 to 232,000 (+13,000). However, the March number was revised downward as 19,000 fewer jobs than originally calculated/expected had been created. This created a ‘net loss’ of 6,000 jobs in the February/March period.

Jobs 1

Source: tradingeconomics.com

Is creating 211,000 new jobs a good result? Sure. It did beat the expectation to see 190,000 news jobs being created, and the unemployment rate dropped from 4.5% to 4.4%, the lowest percentage in a decade (lower than the 4.6% which was expected, but this was also caused by a lower labor force participation rate, which fell from 63% to 62.9%). However, whereas most people focus on the unemployment rate, we would consider the underemployment rate to be as important.

After all, it’s not because someone has ‘a job’, someone has a full-time job or is able to pay his or her bills. Whilst there was a decrease in the underemployment rate, it’s still relatively high at 8.6%.

Jobs 2

Source: tradingeconomics.com

Another important element in the data chain are the average wages. It’s great an economy is able to add jobs, but what about wage growth? If the wage growth rate is lower than the inflation expectations, the newly created jobs will lose purchasing power day after day, week after week.

And that’s where it gets interesting. In the past two months, the average salary in the private sector increased by just 0.34%, whilst the inflation expectations were trending higher. This means two things; the wage increases aren’t keeping up with inflation, thus destroying purchasing power but secondly, it also means the lower wage increases might actually put the brakes on the inflation results and the inflation expectations as well.

If we would combine this with the meeting statement of the Federal Reserve from Wednesday, the situation gets really interesting. The Fed thinks the weak GDP growth rate in the first quarter of this year was just ‘transitory’, and the central bank still expects the GDP growth to continue at a moderate pace, creating more jobs.

Most Fed board members have been pushing for three rate hikes this year and whilst all eyes are on a June rate hike, it’s not entirely possible the Federal Reserve will hold off until July. We still have to wait for the April (and May) inflation results, and we think those will be very important pieces for the Fed to decide whether or not it will hike the interest rates in June.

Jobs 3

Source: Federal Reserve

One step was already taken by the Fed. In its recent statement it confirmed it continues to reinvest the principal payments from the portfolio in new securities, and will continue to do this ‘until normalization of the level of the federal funds rate is well under way’. So the size of the balance sheet won’t be reduced for now, indicating the Fed is still very careful and doesn’t want to act too fast.

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True Blue's picture

The civilization cycle is an induction wave of the business cycle. Prepare accordingly.

Caleb Abell's picture

"A Decade-Low Unemployment Rate? But At What Price?"

After reading the bullshit title, above, there was no need to read the article.  The good folks in Washington have achieved a miracle: low unemployment and low labor participation rate at the same time.  Even P T Barnum or Elon Musk (sorry for being redundant) would be embarrassed to spew such nonsense.

DuneCreature's picture

Anyone who believes Bureau of Labor Statistics numbers is smoking crack.

When the crack runs out crack smokers have been known to pull out locks of their own hair by the roots and to stuff those in the pipe and light them trying to recover some of the 'crack goodness' saved in the hair follicles from bygone rocks.

Live Hard, I Suggest Sweeping Up The Bath Salts From The BLS Break Room Floor And Burning Those Instead, Die Free

~ DC v5.0

DEMIZEN's picture

that sad clown rosenberg said today that economy is overheating because of the full employment. I had to spill my coffee swallowing down todays soundbites. What a fucking theater of absurd. The comical ali of the fed. 

Common_Cents22's picture

If Trump team was smart, they'd expose the REAL unemployment rates and knock down expectations and give America the truth after Fraudbama.

meditate_vigorously's picture

Another clue that Trump is a fraud.

DEMIZEN's picture

forget trump. trump will be fighting the "russian stooge" allegation until the end of his term.

Aussiekiwi's picture

The FED are Liberals, rate hikes must continue regardless to ensure Trump can't build his wall.

GUS100CORRINA's picture

A Decade-Low Unemployment Rate? But At What Price?

My response: Lies, lies and more damnable lies!!! We are NOT, I repeat NOT at decade low unemployment!!! These are manipulated government figures from a den of thieves and vipers.

The ShadowStats Alternate Unemployment Rate for April  2017 is 22.1%!!!!!!

Go read about it for yourselves at www.shadowstats.com.