The Federal Reserve Board's good ship Raise-the-Interest-Rate sailed into an iceberg Friday when the government reported that a mere 38,000 new jobs had been created in May—the lowest total since November 2010. And that the figures for March and April had been revised downward by 59,000 jobs. And that the seemingly good news—an unemployment rate of a mere 4.7 percent—was due to the fact that 458,000 workers had departed the work force. One wag noted that if that rate of departure continues, the unemployment rate will soon hit 3 percent. That careful analyst of economic data, Donald Trump, who once said the unemployment rate is 28 percent, or 29 percent, or 35 percent and that he even "heard" 42 percent, after about a one-minute reflection tweeted "Bombshell". The Obama administration contented itself with "disappointed" (undoubtedly true) and "we don't give much weight to one month's data" (quite sensible).
Even if we add back the approximately 34,000 Verizon workers who were on strike at the time these data were compiled, the latest report has economists scratching their heads. The housing market is booming: sales are up, prices are up, construction is up, building permits are up. Exports and orders for manufactured goods rose in April. Consumers are loosening their purse strings. Auto sales fell off a bit on May, but remain at levels that make it difficult for even manufacturers and ever-hungry salesmen to complain. The Fed's most recent survey of the nation's several regions, its monthly Beige Book, reports "tight labor markets were widely noted", which explains why wages are rising—at an annual rate of around 2½ percent. Employers are reporting that they simply can't find enough skilled workers to enable them to meet the demands for their products. The operative word here is "skilled".
Yet only the health care sector shows any meaningful job growth. This is a time when the old-fashioned tag, Political Economy, is more appropriate than mere Economics to describe the business in which analysts and forecasters ply their trade. One Obama administration spokesman found some good news in the report. If there are fewer jobs, but the economy is nevertheless growing, even if slowly, it must mean that productivity—what a worker can turn out in an hour—has finally reversed its recent decline. Republican critics of administration policy see in the weak report a culmination of Obama's failure to rein in China's job-stealing currency manipulation, and regulations so pervasive and tax rates so high that companies flee and investment is discouraged. The Lindsey Group has a more reasoned explanation for low hiring rates: falling profits, slow economic growth, and not much new output to be had by adding workers. I would add business uncertainty—The Donald and Hillary are neck-and-neck in most national polls—in this particularly nasty election year
Meanwhile, Fed watchers are convinced that chair Janet Yellen will not dare to raise interest rates just yet. "This unusual jobs report puts the Fed in a tricky position. Disappointing job creation numbers, including adverse revisions to prior monthly estimates, argue for the Fed to remain highly accommodative for now," Mohamed el-Erian, chief economic adviser at Allianz, told the press. Others, among them many of Yellen's colleagues, say the Fed should dismiss the May figure as an aberration and get on with the job of moving interest rates to more normal levels to remove the distorting effect of "free money" on resource allocation and head off inflation. Yellen has to walk a fine line between those "hawks", who fear she is setting the stage for future inflation by staying her hand, and the "doves" who warn her not to plunge the rate-increase knife into the heart of an already weak recovery. And to avoid inflaming critics who are looking for an excuse to reduce the Fed's independence.
So much for the tip of the iceberg, the headline data that get the most attention. Those numbers don't reveal an important change in the way wages are determined here in the U.S.—a move towards the European social democratic model that President Obama has found attractive in so many policy areas— smaller cars, stronger trade unions, more entitlements, less inequality. We are experiencing a change from a labor market in which private parties—individuals, employers, trade unions—bargain for mutually satisfactory terms and conditions of employment, to a government-regulated market. President Obama and the Left favor policies that provide greater assurance for workers who already have jobs, even to the disadvantage of new entrants, and greater equality of earnings, even though that more rigid model produces persistently higher unemployment rates in Europe, especially among the young, than typically characterizes US markets.
Our liberals are also hostile to the so-called gig economy, exemplified by Uber, Lyft and other firms that rely on individual contractors who are free to decide when and where they will answer the call of the app, but who do not have the safety net of paid vacations, social security, employer-paid health care and other such benefits. The solution of such as uber-progressive Massachusetts senator Elizabeth Warren and, lately, Hillary Clinton: more regulation.
Nor are liberal politicians happy with the relation between franchisees of McDonalds, Dominos Pizza and other chains and their employees, who are often paid the minimum wage and who have few of the benefits provided by larger companies. In addition to higher statutory minimum wages, they want workers in fast-food establishments to be considered employees of the large franchising companies, rather than of the small franchisees who are exempt from many labor-market regulations.
There's more. President Obama has ordered that workers making less than $47,476 annually receive time-and-one half pay for hours worked beyond forty per week. The upward striving wannabees who make themselves available at the beck and call of an employer—what some call "the Prada economy" after the depiction of Meryl Streep's savage treatment of her assistant in The Devil Wears Prada—now must record and be paid for overtime hours spent learning the business by trailing behind their bosses at evening events or trade shows, or responding to e-mails in the evening. No more time off to compensate for overtime (comp time) a much-valued perk of many working women. According to the New York Times, which has reliable lines into liberal reformer circles, "Supporters of the new rule see many benefits, saying it will rein in an overly workaholic atmosphere and perhaps diversify a rarefied world that tends to be white and upscale, thanks to its reliance on social connections and the difficulty of working for scraps without affluent parents." Scratch an Obama economic rule and find a racial or egalitarian objective.