The Jobs Report
- The unemployment rate dropped to 3.5% -- matching its Feb. 2020 low.
- Covid is still impacting the labor market. The employment report showed that there were 656K more people out sick than in July 2019.
The Big Debate
The post-Covid economy may be less efficient at matching job seekers to job openings. This could mean higher unemployment for a given level of vacancies to stabilize wages and prices (the natural rate of unemployment). Jobs shifted location and certain skills became more in demand. The Fed can’t fix these mismatches.
To get inflation to 2%, the Fed will need to cool the labor market and wage growth (currently running 5% to 7%). The effort starts by reducing the number of job vacancies. As this declines, unemployment tends to rise (the Beveridge curve).
Fed Gov. Chris Waller just put out a paper arguing that unemployment only has to rise 1%. Vacancies are currently so high relative to available workers that new job openings generate fewer and fewer hires. This means a given decline in vacancies will have a smaller effect on unemployment than in a normal labor market. But this would violate what has always happened in the past.
- Some economists think that the sacrifice ratio (how much unemployment has to increase to drop inflation 1%) is close to 2.
- Despite slowing consumer demand, the supply of workers to make goods and provide services has been considerably below companies’ needs.
- The median increase in unemployment during post-WW II recessions is 3.5%.
- Robinhood’s number of active users is down 34% YoY.
- A recent survey found that 41% of respondents who considered but didn’t purchase a healthcare service over the prior month cited cost as the reason.
- Medical care services inflation rose just 4.8% YoY in June.
- Between 2001 and 2019, rents rose 16% while renter incomes rose only 5% (in real terms).
- The share of American renters who pay 30% or more of their income on rent rose 2.6%. Nearly half of renters now fall into that category.