Unemployment rate going up

The fact that interest rates are as high as they are, and now we have a thread about unemployment going up...not a good sign. If interest rates were set at the level they were under Trump pre-COVID, think what the inflation numbers would look like right now! They would probably look like Jimmy Carter numbers.

 

While there is probably some truth to it in the short term I’ve always mostly viewed the concept as bullshit.

 

Interest rates are at historical averages. They really aren't that high. Rates were higher when I bought my first house 25 years ago. And much higher when my parents bought a house 50 years ago. The FED was right to raise it when they did, and also correct to keep it at current levels.

While the Phillips Curve is too simplistic to be an accurate predictor of inflation, one v thing the curve has shown that's holds true is unemployment has no effect on inflation when unemployment is 4% or higher. Lower, unemployment can potentially be a cause of inflation.

Again, too early to tell, but if unemployment hangs around 4% for the near future, it's a sign that inflation may drop below 3%. If that happens, the FED likely starts lowering interest rates again.

 

The thing is CPI inflation isn’t terribly correlated with unemployment in the short term:

40% of CPI is housing and based on rent measures that significantly lag. This component of cpi is largely baked in for the rest of 2024 as it continues to catch up to new rents. My recollection is by the end of the year it will be between 3-4%.

Then a chunk of the remainder is food and energy. These are correlated to short term demand to a degree, but there are a lot of other factors, such as geopolitical, wars, OPEC, weather, etc.

Then another chunk is services, which tend to follow wages, which are somewhat sticky.

Finally you have some consumer goods and services that are more sensitive to demand swings.

 

Unemployment is definitely rising off historic lows as the red lines I added below show. And the economy may be slowing. Just like the Fed wants. If they dont ease up on rates slightly soon my guess is that economic deterioration will continue in a fools errand to lower an already corrected inflation rate.

 

Over 75% of our GDP is services - the selling of labor. You can’t continue with wage spiraling and not expect inflation. Economy needs the uptick in UE. Anyone that does any hiring would surely agree.

 

Yeah it's just basic economics that when the supply of something goes up (in this case labor), the price of that thing (in this case wages) goes down. Increasing wages are big component of inflation. Also, when more people are unemployed they have less money to spend on goods and services, decreasing demand, prices go down. So increased unemployment decreases inflation in a couple of ways, all other things being equal of course.

 

Unemployment illustrated.

 

I’m not 100% sure service wage inflation is bad. The lower tiers of labor have been fairing well due to the shortage. More so than inflation.

Low-wage workers have seen historically fast real wage growth in the pandemic business cycle: Policy investments translate into better opportunities for the lowest-paid workers

 

Ask President Romney about the accuracy of Rasmussen's predictions.

 

So your metric for "full employment" has literally nothing to do with employment?

 

Democrats were as giddy as ever when they overreacted to COVID and destroyed America's economy just in time for the 2020 elections.

 

Which of the 2 major American political parties held the White House and most governorships in November of 2020?

 

This is one of the smarter things you've done here. Take your 'L' and move on.

 

They’ve gone so deep into their bubble they don’t remember dates and who was president anymore.

 

Correct. The right wing machine produced multiple statements lately chiding Biden for what happened in 2020 or earlier as well as praising Trump for things enacted in 2021.

 

Been in airports a lot this week. Airports are busy and every flight has been completely full. Doesn't look like you'll be getting the 'stag' part of the stagflation you are hoping for any time soon.