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The Power of the Wave Principle

Inflation Doesn't Come From Seasonally Adjusted Employment

Economics / Inflation Feb 16, 2016 - 05:19 PM GMT

By: Michael_Pento


According to the Bureau of Labor Statistics (BLS), there were 151k, 000 net new jobs created in the month of January, and the unemployment rate fell to 4.9%. The continuing increase in new job creation and removal of slack in the labor market is causing the Phillips-curve-obsessed Fed to maintain a tightening stance on monetary policy.

However, not only is Ms. Yellen and company wrong about the progenitor of inflation, the Fed is also obsessing about job growth that isn't real. According to that same BLS, in December of 2015 thru January 2016 the economy actually lost 2,999,000 jobs, or 2.08% of the workforce. The Labor Department arrived at a positive employment number because the BLS seasonally adjusts the data--my friend David Stockman had more to say about his in his excellent blog.

On a seasonally adjusted basis the U.S. economy created 413k, 000 jobs during that timeframe. Of course, it makes sense to adjust the jobs data for hiring and firing around the Christmas season. But it makes much more sense to look at the data year over year for a more accurate assessment of the labor market. During December 2014 thru January 2015 the economy shed 2,820,000, or 1.99%.

Therefore, the economy not only lost 179,000 more jobs this year during the post-Holiday layoff season than it did the year prior, but it also suffered a greater percentage of job losses than it did during the comparative time frame.

What makes this layoff picture even worse is the number of retail corporations that are in the process of closing their brick and mortar presence. For example, Walmart is closing 154 stores in the United States and is laying off 10,000 employees. There are also about 6,000 other major retailers that are in the process of shuttering up their stores. This means the part-time, retail-job growth economy, which has been the staple of hiring since the recovery began, will be shedding more jobs at an increased rate going forward.

And please don't believe today's 4.9% U-3 unemployment is comparable with times past. The last time the unemployment rate was 4.9% was February of 2008. At that time the Labor Force Participation Rate (LPR) was 66 and the Employment to Population Ratio (EPR) was 62.8. Today's low unemployment rate comes with a LPR of only 62.7 and an EPR of just 59.6.

But the major point here is that a low unemployment rate can never lead to inflation. And this is especially true when all of that job growth is the seasonally adjusted phantom variety. The Keynesian squatters who inhabit the FOMC believe dogmatically that inflation is the result of too many people being employed. However, what they fail to understand it that inflation is all about a loss of confidence in the purchasing power of a currency. That can never be the result of a low unemployment rate.

Nevertheless, Yellen and her Philips-curve junkies indicated clearly in the Semiannual Monetary Policy Report to Congress on February 10th that the FOMC will lean toward hiking interest rates until the U-3 unemployment rate begins to rise. This means the Fed will be threatening to continue tightening monetary policy into an incipient global deflationary depression. But Yellen will not be able to increase the Fed Funds rate above the 75bps level before the bottom completely falls out on the global economy. Perhaps she will be pretend the world isn't collapsing around her for a little while longer. But we all know better and it won't be long before the Fed joins the rest of the developed world's central bankers into perpetual QE and NIRP.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”


Michael Pento
Pento Portfolio Strategies

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to and is a blogger at the Huffington Post.
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.

© 2016 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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