Job offers are obvious in Washington as in any big city in the United States. One goes to buy clothes and in the store there is a sign offering work. Same in the restaurant. Before starting the film, along with the announcements of upcoming releases, another encourages people to ask for a seat at the cinema. And in the bank, a cartel offers as a claim a transfer bonus of up to 1,500 dollars for those who dare to work in the entity. The economy has created jobs at full speed after the pandemic and the unemployment rate is 3.6%. In some states, it has never been this low. The country is practically at full employment.
The figures for the month of May published this Friday by the Bureau of Labor Statistics confirm that unemployment rate of 3.6%, the same as in March and April and very close to the minimum in decades, the 3.5% that was marked just before the pandemic. The economy has chained 17 consecutive months of job creation. In May, companies have created 390,000 non-agricultural jobs despite the tightening of monetary policy and interest rate hikes. Although it is the lowest figure in recent months, it is considerably more than expected, and it is not far from the figures of the last two months.
The most notable job gains have been in leisure and hospitality, professional and business services, and transportation and warehousing, while employment fell in retail.
In the United States, the labor market is measured primarily with two surveys: one to businesses and one to households. The first is taken as the main reference for the number of job creation and the second is used to measure the active population and the unemployment rate. In this second survey, job creation has been somewhat lower (120,000 jobs in the month), which, together with the increase in the active population, has left the unemployment figure at 5.95 million people, that 3.6% .
The president of the United States, Joe Biden, has convened this Friday to make a public statement on the evolution of employment. Biden tries to convey the message that the economy is doing well despite inflation, which has become the biggest concern of citizens and has eroded his popularity. Biden has launched a communication strategy aimed at highlighting good economic news, such as job creation. He has also wanted to show that the fight against inflation is his economic priority, although giving the leading role (and the blame?) to the Federal Reserve.
This staging responds to the fear that the discomfort due to inflation will take its toll on the Democrats in the legislative elections on November 8. In these mid-term elections, the 435 seats in the House of Representatives and just over a third of the 100 in the Senate are renewed. The majority that comes out of the polls can block his legislative agenda for the next two years.
He knows in depth all the sides of the coin.
After the strong destruction of employment due to confinement, economic and monetary policy was aimed at recovering activity. The Federal Reserve flooded the markets with liquidity with the purchase of financial assets and low interest rates. The Administration handed out checks right and left. The closest thing to the metaphor of throwing money from a helicopter, Milton Friedman’s happy metaphor popularized by Ben Bernanke.
This made it possible to sustain activity and underpin the recovery, but when demand has been gaining strength, some supply problems (blockages in the supply chain, confinements in China, the war in Ukraine and the consequent rise in energy and food prices …) have translated this excess liquidity into inflation. Prices rise at the fastest pace in 40 years, at a rate of more than 8%. Statistics published this Friday show that hourly labor costs are rising 5.2% year-on-year, thus fueling second-round inflation.
The US Federal Reserve has a dual mandate from Congress: to achieve full employment and price stability. While in the first subject he has honors, in the second he fails. Its defenders argue that the Fed has avoided a long recession, that in the middle of takeoff it was not the time to turn off the plane’s engines and that a good part of the price increases are exogenous and could not have been avoided with a tougher monetary policy. His critics point out that the central bank miscalculated the risk of inflation and did not withdraw monetary stimulus on time.
Now, with unemployment at a low and inflation at a high, the Fed is tightening monetary conditions apace, both by raising interest rates and by reducing its balance sheet. And, in addition, with his messages. In fact, market interest rates, and with them mortgage rates, have risen faster and faster than official rates. The Fed, which applied a half-point rate hike in May, the largest in 22 years, plans to make at least two others of the same amount in June and July and some of its members are already warning that more may be needed.
The big question is whether the Fed will be able to contain inflation without triggering a recession. The road to that goal is narrow.