The Game Isn't Over

At the beginning of the season, not many predicted that the Philadelphia Eagles would be in the Super Bowl this year. But, they had a fantastic season and are favored over the Kansas City Chiefs. Predicting this economy is equally hard. Anyone who thinks they know exactly how things will turn out is fooling themselves. COVID policies – lockdowns, massive borrowing, and money printing to pay people not to work – have never been tried before. So, what happens is still up in the air.

It seems like just yesterday that ZeroHedge – with help from the Philadelphia Fed – was trying to convince people that job growth was non-existent in the second quarter of 2022. Never mind the fact that they purposefully conflated two different measures of jobs…it just wasn’t true.

So, it must have come as a shock to those who believed that nonsense that in January, after the equivalent of 17 quarter-point Fed rate hikes, jobs data and hours worked exploded to the upside. Nonfarm payrolls rose 517,000 jobs, while revisions to prior months added an additional 71,000.

Not one economics group came even remotely close to getting this number right. And the print was especially surprising after seeing retail sales fall 4.3% and industrial production fall 5.2%, at three-month annualized rates, through December.

The difficulty of forecasting in this environment is absolutely astounding. On the one hand, the M2 measure of money has contracted in the most recent twelve months (the first time in more than sixty years), after growing over 40% in a two-year timespan. On the other hand, even with the Federal Reserve’s sharp rate hikes, the federal funds rate is still below inflation.