Never Reason from a Quantity Change
Today’s jobs report has been widely viewed as bad news:
It’s “bad news for the markets and for the Fed,” Mohamed El-Erian, the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist, said on Bloomberg Television.
“The Fed is not going to welcome this report. Over the long term this may end up being bad news for the economy as well,” he said. “Something is likely to break.”
Payroll employment rose by 337,000, and the previous two months were revised upward by 117,000. Nearly 800,000 jobs were created in just the third quarter of 2023 (a period when most economists expected the economy to be in recession.)
There are cases when excessive growth in employment is indicative of an overheating economy. But quantity changes alone are not very informative, you also need to examine why the change occurred. Was it an increase in labor demand or labor supply? After all, either shift can increase the total quantity of employment. Never reason from a quantity change.
An increase in labor demand tends to push wages higher, while an increase in labor supply reduces wages. I was a bit surprised to see nominal wage growth come in at only 0.2% in September, which is less than expected. Of course that’s only one month’s data, and the rate may tick up over the next few months. Nonetheless, the slowing wage growth is very good news—indeed the most important part of the employment report. It seems as though the US is experiencing a surprisingly large increase in labor supply—perhaps partly due to a rebound in immigration from the depressed levels during the Covid period. This makes a soft landing at least slightly more likely.
PS. Speaking of immigration, do you recall when President Trump spent money that Congress refused to appropriate:
Early last year, Trump demanded $5.7 billion for the border wall, but the House of Representatives, under Democratic control, refused, triggering a partial government shutdown that lasted 35 days. The impasse ended when Trump signed a new spending bill that did not include the border wall funding he sought.
But a day later, he declared a national emergency and ordered the Pentagon to transfer $2.5 billion to pay for border wall projects. The administration said the new barriers, extending up to 130 miles, were designed to prevent “drug smuggling.” Later, Trump ordered the transfer of another $3.6 billion for new border barriers in Texas.
The Constitution says, “No Money shall be drawn from the Treasury but in Consequence of Appropriations made by law.”
Authoritarian leaders often cite “national emergencies” when wishing to circumvent the legislature.
And do you recall when the Supreme Court ignored the Constitution and upheld Trump’s action?
The Supreme Court has allowed President Trump to defy Congress and continue to spend more than $6 billion diverted from military funds to pay for the construction of a border wall in parts of Arizona, New Mexico, Texas and California.
President Biden now claims he’s being forced to build a wall that he opposes because Congress appropriated the money back in 2019. Sorry, but I don’t believe him. That’s not how our system works in the 21st century. Presidents can pretty much do what they wish.
The wall will do nothing to address the recent surge in asylum claims.