Unemployment and a Confused Economy
Think Piece/Open Discussion
Many people have been questioning the reasoning behind what has been going on with the United States economy. Unemployment numbers are near record lows but other factors indicate an impending “doom” of the economy:
Inverted Yield Curves
Absurdly High Debt Utilization
Negative GDP Growth
However, people continue to move steadily on and life continues unabated.
Every day people have speculated that the government, banks, and big businesses are keeping people in the dark until they deploy the safeguards. Many people also speculate that such economic uncertainties and confusion can be because of Covid and if this is so, the White House has been correct to say it really isn’t a big deal.
Relatively speaking, things look fine for now. The inverted yield curves have not always been the best indicator of inflationary consequences. Don’t get me wrong, inflation is a problem in and of itself but it is probably buffeted by savings built last year with a good proportion of the population. Companies also took on a lot of debt last year when interest rates were still very low and the FED was boosting the economy with cash. At the end of the day, this may not even be a problem.
However, things do have to be slowed down before we hit a demise aspect. The Fed’s actions of controlling inflation haven’t had any control over the events responsible for inflation and that is a risky bet. The Fed never did a “soft landing” before and with current transmission technologies, decisions can happen faster. Maybe they pull it off.
Labor Force Participation
On another foot, the labor force participation rate is dropping for people of prime working age. This isn’t the first time this has happened. However, something to note that is every time this figure has dropped since 2008 it hasn’t really recovered. After the 2008 financial crisis, a sudden drop in labor force participation fell. It turns out, that there is actually a well-known, albeit counter-intuitive, negative correlation, that has been studied and tested for the last 100 some years, between the number of job advertisements and the labor force participation rate.
The inverse relationship shows up in economies where the market for purchasing labor cannot meet the actual cost of providing labor and thus the market that is advertising said labor openings ends up being more of a “wish list.” This is something we all must learn to distinguish, especially inside an economy that starts to limp on broken legs. You can usually look to the labor force participation rate among able-bodied adults to determine just how healthy the economy is behaving.
Pumping Fiat Money into the Economy
The Fed and the government also continue to pump fiat money into the economy. Not as much as what was recorded during the Covid pandemic, but if you look at the drop-down menu on the Fed’s website and look at the last year, you’ll see just the extent we have gone to.
In January, inflation was sitting at 7% and they still didn’t try to shorten the balance sheet. The Fed is also continuously raising the rates. It is obvious that this is the opposite of how quantitative tightening is supposed to work.