Opinion: The latest U.S. jobs report is not what it seems 

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We recently saw the release of the August jobs report in the U.S. where 315,000 jobs were added. These 315,000 jobs became the primary speaking point as can be seen in the celebration of the report across articles. It was an important political week when the report came out, with several campaign events across the country, and incumbent politicians were happy to further reinforce how strong the report was. This is nothing unique to them; every administration uses the jobs report to commend what they’ve accomplished or early in their term to scold the previous administration for the situation they now find themselves in. The problem though is that the noise and congratulations became the commentary of the week and overshadowed the details of the report; these details paint a more concerning view of the economy.  

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To many, 315,000 jobs sound good, but when reviewing the report, it first shows that full-time employment declined. Individuals holding multiple jobs increased by 114,000, while 225,000 people were working part-time because they couldn’t find full-time work. This reads as if people who needed income either had to get multiple jobs or a part-time job to make ends meet. If you were working multiple jobs to pay bills because you’d lost your full-time job, you likely would not feel better about your economic situation as compared to the previous month. The public though is being told these numbers are a big success. These elements of the report suggest that people are working as much as possible to make ends meet.  

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The craziest thing about the response to the report is that most news networks referenced it positively as well, mentioning that it gave the Federal Reserve the green light for another rate increase in the upcoming meeting. We just saw that increase on Sept. 21, when the Federal Reserve raised benchmark interest rates by 75 basis points. Another large rate increase is not going to help the people that are struggling based on the August data. As the cost of car loans and mortgages increases further it shouldn’t surprise us to see even more part-time jobs in the next report.  

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Why then did the Federal Reserve take this opportunity to raise rates again? It is to avoid structural inflation. The worry is that inflation becomes embedded in the economy and creates a wage-price spiral. Preventing this occurrence is a critical part of how the Federal Reserve measures success. “We can’t allow a wage-price spiral to happen, and we can’t allow inflation expectations to become unanchored,” Jerome Powell, chairman of the Federal Reserve, said earlier this year. The wage spiral specifically is where the cost of living becomes so high that workers demand much higher wages, and then corporations need to charge more to still make money, and onwards and onwards in an accelerating fashion until the economy ceases to function efficiently. Sounds super scary, and worth preventing. The problem is that wage growth was zero per cent in the latest jobs report, indicating that a wage spiral is not currently occurring.  

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Without the spectre of a wage-price spiral, the goal of the Federal Reserve that keeps them going is to simply bring the inflation reports down. This is tied to their mandate. The problem is that the primary driver of inflation currently is energy. Higher rates are less impactful at reducing energy prices right now because prices are being driven higher by several years of underinvestment in the energy sector. We, therefore, are looking at an economic scenario this fall where people are barely getting by and the Federal Reserve just raised the cost of their loans even higher. Hopefully, I am incorrect and when the next jobs report comes out, I can write an interesting summary of how and why I was wrong in my read of the numbers.  

Mark Le Dain is vice-president, corporate development, at Neo Financial in Calgary.

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