At last, you get to read the realization I said was coming. After Tuesday’s release of slumping jobs data (without any rise in unemployment), CNBC today finally says what I’ve been saying about jobs for many months. So, maybe some small sliver of the financial media’s starting to catch just a glimpse of how badly nearly everyone has been misunderstanding the tight labor market:
While the drop in job openings was significant, the reduction is due to little turnover, said Elise Gould, a senior economist at The Economic Policy Institute. The elevated amount of job openings observed in the last few years was not necessarily signaling an overheated job market, but rather a higher rate of “churn” as people quit and found new jobs at a faster rate, she said.
Now that it would be inconvenient to the “resilient economy” narrative to say that the slowdown in new jobs creation indicates an economy sliding toward recession (which means declining GDP), they can revise the past like they do with GDP and jobs reports and say, “Maybe the tight labor market never really had anything to do with a strong economy in the first place.”
After all, you can’t play it both ways at the same time (unless you're talking about gender where we’ll soon have people declaring dual genders, or just dueling genders - mark my word). So, if you don’t want to say recent new-jobs reports indicate the economy is sliding toward recession, you wash away the decline in new jobs by saying strong jobs numbers never had anything to do with a strong economy in the first place.
Of course, that is the position I’ve held to all along, but this is the first time I’ve read it on CNBC.
As that churn declines, so will the number of job openings.
“It’s not because things are necessarily contracting, it’s just normalizing somewhat,” she said of the labor market.
SEE. If a tight labor market was always about a strong economy, as claimed, then you can’t have jobs slipping now because that would mean the “R” word. So, you flip the narrative. In this case it is flipping from a claim that was untrue for as long as it was claimed post-Covid toward the one that was always true. The flip is that tight labor was NEVER due to a strong economy. So sinking jobs numbers do not mean the economy is now less resilient.
However, a drop in new jobs in an economy where labor tightness was always due to a shortage of laborers, not strength of product and service demand, does not mean anything good for the economy now nor even that it is not contracting. It means it is contracting, but unemployment hasn’t started to rise because labor was in short supply all along. That was the only reason labor was tight — not enough of it to even meet weak demand. That is weak labor in terms of the strength the pool, but it puts those who remain in the pool in a much stronger bargaining position.
In that sense, yes, things are normalizing, but they are normalizing to a new norm. Job openings are finally coming down as the economy contracts to match down to the diminished labor pool. As the economy cools, companies start closing out some of those long-open jobs, stop recycling old jobs that were actually a big part of that churn because jobs went unfilled for so long that they were pulled and then finally re-listed as new jobs, even though they were the same old job coming around for another run at finding laborers (like when you take your house off the market for awhile then re-list it to freshen up the listing).
In an economy where labor was in seriously short supply, workers were easily able to quit their jobs if pay didn’t rise quickly or enough and move to other jobs. So, people churned their way up the wage ladder. There were a lot of quits, not because so many new jobs were driving up demand for labor and wages but because the severe shortage of labor was driving up wages in order to attract the limited labor supply. None of that had anything to do with a strong economy, but the Fed and everyone else believed it did and used it to say 2022’s half year of declining GDP couldn’t have been a recession “because labor was tight, and we don’t have recessions without rising unemployment.” Thus, we see the argument that tight labor proved a strong economy is starting to get turned around.
Just when you think they are starting to get it, though, you find out they aren’t:
“Somehow we’ve had a soft landing so far, the labor market has been incredibly resilient to the Federal Reserve’s actions against raising interest rates so quickly and so high, I hope that we continue to see that,” Gould said.
It’s easy for workers to be resilient toward the loss of new jobs when wages keep rising because there aren’t enough workers, so any available workers are in high demand. It doesn’t say anything about the strength of economy, except that an economy without enough workers to do the work is likely to be an economy with declining production, not rising GDP.
I am sure that is too much nuance for today’s financial journalists to sort out.
The student lead balloon
Here’s an interesting one. It appears, according to some economists, that student loans, as they come due again, might hit us with an impact as bad as the housing bust in 2008-2010. Now this isn’t something I saw coming (and I’m not even sure it is coming), except in how defaults are an inevitable part of the rising interest rates I said would go on a tear this summer as Treasury issuances blew a hole through the ceiling.
The part I didn’t see coming was the knowledge in another article today that student loans got packed into securities. Just like those old mortgage-backed-securities that broke the banks when homes started defaulting during the Great Recession. Yes, we may have the old MBS problem back, except it will be SBS — Student-Backed Securities.
The U.S. has amassed more than $1.7 trillion in outstanding student debt, according to the Federal Reserve Bank of St. Louis.
Billions of dollars worth of student loans are packed and sold as assets known as student loan asset-backed securities to some of the biggest investors in America.
But as student loans continue to balloon, experts have expressed growing concerns surrounding the SLABS market. The worry is that SLABS could pose a systematic risk to the American economy, similar to how subprime mortgage-backed securities contributed to the crash back in 2008.
“I saw the parallels and it really freaked me out because I realized that this cycle was only going to repeat,” said Allison Pyburn, an asset-backed securitization expert and former editor-in-chief at Debtwire ABS….
The Consumer Financial Protection Bureau estimates that one in five student loan borrowers have risk factors that could cause them to struggle when federal student loan payments resume in October.
Keep your eye on that one for early next year. She may be hyperventilating, but those I talked to in 2007 about the coming bank bust over real-estate thought I was hyperventilating. I’m not goin out on this rotten limb with her, but I’ll say “put a watch on it” as something that could get interesting.
Treasury getting trounced and you with it
If you really want something interesting to watch, put a watch on what those expanding Treasury issuances and rising Fed interest targets and bond roll offs are doing to government interest in terms of how much of your taxes the interest alone now consumes. In one of the articles listed below, Wolf Richter presents some eye-popping graphs that show how government debt-service cost is skyrocketing … almost straight up.
In another article below, he points out how core services inflation is back on the rise, which is coming close to confirming the prediction I made at the start of the year, which was that, later this year, we’d see inflation start to rise again (in spite of how happy everyone was that it was falling as they bet the Fed would be backing off of more hikes for several months following that prediction). We are seeing it now in the PCE index the Fed watches for its 2% inflation target. It hasn’t yet hit CPI, but it typically does.
Services inflation is at it again. Year-over-year, the “core services” PCE price index accelerated to 5.4%, the second worst since 1985, according to data by the Bureau of Economic Analysis…. The Fed’s job is far from done. Powell has been fretting about core services inflation for a year, and today he got what he worried about.
Unless something even more interesting comes up, I anticipate digging into that more in this weekend’s “Deeper Dive.” While the Pivotheads are long dead, there are still many hoping the Fed is, at least, DONE … or close to done.
As the head of England’s central bank said,
Rates Must Stay ‘Sufficiently High’ for Some Time
Huw Pill told an audience in South Africa that he preferred a “Table Mountain” profile for UK rates, where they remained moderately high for some time rather than escalating rapidly and then dropping quickly.
Even if central banks stop raising rates, they are likely to hold them high for a long time … long enough that they are certain they have crushed the many hydra heads of inflation. Given the lag time between central-bank interest hikes and economic events, there is a great deal to play through from recent increases and more of that as they hold onto to those high rates to keep strangling out the weakest players in the economy, which are not always the smallest players, but often the biggest players with a lot of hidden corruption or a lot of dependence for their games on cheap interest.
The table-mountain approach says, “We won’t go as high, but we’ll hold out at a high level for much longer.” So, lots more time for the damage to build beneath the surface of the economy and then reveal itself. Always the path I’ve believed they will take — higher for longer. At this point, now that they’ve put in a lot of big and rapid rate hikes, it’s probably more like a little higher for longer. BUT, if inflation does go back to rising, so this latest bounce is not just an anomaly, then the rises in rates could get worse again.
Another article says the European Central Bank is facing the same reality of inflation stagnating at a fairly high level … just as it goes into its next rate-setting meeting.