September Job Report Reactions – Predictable But Misguided

By SBE Council at 6 October, 2023, 1:52 pm

by Raymond J. Keating –

Periods of inflation reveal just how far off base the prevailing assumptions can be about our economy and how it works. Too many in the world of economics and in the media blame inflation on so-called “overheating” of our economy, in particular, on too many jobs being created.

As a result, when we get a jobs report for September that points to a gain in payroll employment, according to the establishment survey, of 336,000, the market reacts negatively.

Why? Because the assumption in the market is that the Federal Reserve will not like the number, and further raise interest rates in the hopes of undermining growth.

Does this seem silly to anyone? It does to me.

After all, our recent bout with inflation found its roots in supply chain issues that were coupled with government-ginned-up demand, and unprecedented loose money by the Fed starting in 2008. And yes, the traditional point that inflation results from too much money chasing too few goods holds.

So, how exactly does further undermining the economy aid in bringing down inflation? It doesn’t.

Instead, inflation has eased due to the private sector freeing up, improving and expanding supply chains. But we sure could use the Fed to get even more serious about reining in the money supply (specifically, the monetary base over which it has direct control), and stop playing the interest-rate-manipulation game.

But there’s more to this story. As SBE Council has long noted, there are two surveys and employment pictures presented in each month’s employment report. While the establishment survey pointed to 336,000 in job gains in September, the household survey indicated that employment growth for the month was a mere 86,000.

For good measure, those not in the labor force increased by 124,000. So, the household survey pointed to a far less positive – indeed, a neutral-to-slightly-negative – monthly snapshot on jobs.

And it must be kept in mind that the household survey better captures small business and startup activity.

Nonetheless, a balanced assessment of the jobs market based on both surveys doesn’t seem to be in the mix when talking heads chat about this report, and when markets react to the numbers.

None of this, by the way, is good news when it comes to implementing the correct public policies affecting the economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.