Jobs With Little Growth Means Less Productivity

We have used the word “unprecedented” to talk about the economy during and after COVID. We have never before locked down economic activity, while printing trillions of new dollars to help finance trillions of extra government borrowing to pay people not to work. But now, it’s all over…the Federal Reserve has lifted rates, M2 is falling, and we’ve stopped paying people not to work.

We can’t look at history for help, we’ve never done this before. At the same time, we cannot see a way to avoid paying a price for these policies…a recession seems almost inevitable. But after Friday’s employment report, and the new fascination with Artificial Intelligence (AI), the markets are acting like everything is perfectly fine.

The S&P 500 jumped 1.5% on Friday and is now up 11.5% this year after a strong headline jobs report with signs of moderating wages. Nonfarm payrolls increased 339,000 in May and the US has added 1.57 million jobs this year, a 2.5% annualized growth rate. In the past year, total jobs have increased 2.7%.

One would think that with 2.7% more people working the economy would grow by at least that much, yet, real GDP is only up only 1.6% over the past year and rose just 1.3% at an annualized rate in the first quarter. In other words, productivity is falling. At the same time that AI is making so many people think technology will lift profits and economic activity, the actual data on the economy say the US economy is pumping the brakes.