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business newsThe Case for a Fed Rate Hike
With the trend in inflation down and unemployment high, the Fed appears to be on hold for the rest of the year -- and well into 2011.
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Everywhere there are arguments that we’re in a V-shaped recovery. And there are signs that in fact that is the case. Today we’ll look at some of those, and then take up the topic of when the Fed will raise rates. We open the case and look at the evidence. Is there enough to come to a real conviction? I think there is. Employment Is Turning the Corner
There’s a little-known employment report that the BLS (Bureau of Labor Statistics) releases late in the month that’s a summary of the employment reports from the 50 states. Of late, this number has been higher than the federal government survey. Adding the states together, we find that 412,200 jobs (non-seasonally adjusted) were created in April, higher than the establishment survey (which for whatever reason gets the headlines) and more in line with the household survey, which showed an employment gain of 550,000 (seasonally adjusted).
I think it’s well established by now that I’m not a fan of the birth/death employment estimates in the establishment survey. That’s where the BLS estimates the number of new jobs created by the birth or death of new businesses. It’s often a significant portion of the jobs survey and it’s a seasonally adjusted guess. There really is no alternative but to make this estimate, but at the beginnings of recessions it always overestimates the number of jobs, and at the beginnings of recoveries it will underestimate them.
Remember the "jobless recovery" of 2002-2004? Eventually (several years later) the BLS gets hard data from tax and other sources and goes back and revises the employment numbers. No one cares, because it’s "old news." But we can now look back and see the jobless recovery we thought we were in wasn’t all that bad. The birth/death estimates decidedly understated the growth that was going on at the time.
That may be the case now, too. The much stronger state and household surveys suggest that we may be at the beginning of a labor recovery that will be understated by the establishment survey, as the birth/death model just won't catch that growth. If this pattern continues for the next few months, I think we should begin to pay more attention to the state and households surveys. Let's hope it does.
That being said, the level of reported increases isn’t showing up in the income tax reports. There may be several reasons for that, one of which is that people are going back to work for less money and thus paying less taxes. And that would make sense, as there are now five out-of-work people seeking jobs for every job opening. The employers have the negotiating power.
Businesses are cautiously building inventories and bringing people back to work. Sales-to-inventory levels aren’t out of line and suggest we may see more inventory-building this quarter, which will directly help boost GDP. Retail sales growth is modest by previous recovery standards, but there is at least growth.
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