Fears of Stagflation Loom as Job Growth Stalls
Job growth numbers on Friday failed to impress. Economists had predicted job growth in the area of 720,000, but according to the Department of Labor’s estimates, jobs growth for August was only a third of that: 235,000.
Commentators on CNBC called it “terrible news” and the word “stagflation” has started to appear more and more in the media and investor narratives.
For example, Desmond Lachman writes in The Hill:
Today, with inflation rising to levels last seen 30 years ago and with unemployment remaining stubbornly high amid the COVID-19 pandemic despite massive policy stimulus, we may again be entering a prolonged period of stagflation…”
A Barron’s headline reads: “A Weak Jobs Report Puts Fed in a Bind as It Stares at Stagflation.” The Street has advised investors to “embrace stagflation” and BofA warned of “the potential for stagflation.”
And there are good reasons to fear that stagflation may be on the horizon.
Consumer confidence fell to its lowest levels since 2011 in July. The Atlanta Fed has reduced its Q3 forecast from 6 percent to 3.7 percent over the past month. Bank lending has turned negative in year-over-year measures in recent months—both in real estate loans and commercial loans.
It’s now abundantly clear there is no “v-shaped recovery” as so long promised by advocates of covid lockdowns. Total non-farm employment remains 5.3 million jobs below February 2020’s peak. Although the headline unemployment rate fell in August to 5.2 percent (down from 5.4 percent in July) this is likely being pushed down by a depressed level of labor force participation —which remains well down from 2019 in the 25-54 age bracket.
Bigtime Stimulus with Disappointing Results
All these numbers should be much better given that the economy is still in the midst of receiving enormous amounts of monetary and fiscal stimulus. Federal spending is at multi-generational highs, largely because the federal government can continue to borrow at rock-bottom interest rates. This is only possible because the Federal Reserve continues to add to its $8.3 trillion portfolio composed largely of government debt and mortgage assets.
Over the pa
Article from Mises Wire