Where Are the Workers?

No Slack
Demographic Change
New Regime
October Employment Numbers
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Cleveland, Houston?, Denver, Dallas, and Tulsa

By now it should be clear Federal Reserve leaders intend to keep hiking until the economy breaks. Their recent speeches and interviews all underline this. Specifically, they want to reduce the strong consumer demand that has been keeping goods and service prices elevated. Interest rate hikes are merely a tool they have to that end—and not a very efficient one, either.

Consumers, however, show little interest in cooperating. That’s not always voluntary; people have to buy food, gasoline, and other necessities. The other purchases that sustain US living standards are proving sticky as well. We have seen Paree and no longer want to stay down on the farm.

That being the case, at least as far as the Fed seems concerned, demand must be reduced the hard way—involuntarily. Enough people need to lose enough income that they will have no choice but to reduce their spending. That means taking away their jobs and/or cutting wages. “Nothing personal,” Jerome Powell would no doubt say, but the effect is the same… or would be if the Fed could actually generate unemployment. That is proving a slow, difficult process.

Last week’s JOLTS report showed US employers listing 10.1 million openings at the end of August—down over a million from the prior month, but still quite strong. The same agency’s data showed 6.0 million unemployed Americans that month, meaning employers needed 4.1 million more workers than were available.

That’s good news for job seekers—at least those who qualify for the available openings—because they can demand better wages and working conditions. For the same reasons, it’s a challenge for employers. But it’s a serious problem for the Fed. It means their main demand-suppression tool is broken and controlling inflation is thus a lot harder.

Today I want to talk about why the labor market is so out of balance. Some of this is new and some has been brewing for many years. We will end with some commentary on yesterday’s unemployment report.