Abolish The FOMC…..Now!

Here we go again. This month’s household survey said that there were 126,000 fewer Americans employed in May 2024 than in July 2023 (black line), but that didn’t stop the Deep State minions down in the bowels of the BLS from powdering the pig. They simultaneously trotted out a goal-seeked headline number for the establishment survey which said Bidenomics is doing just fine, having generated a 2.32 million increase in the number of “jobs” (purple line) created during the same 10-month period.

Nor is this exercise in up and down together and all at once just a short-term aberration. Since the eve of the COVID-Lockdown disruptions in February 2020, the BLS claims that 6.2 million new “jobs” (establishment survey) have been created, but also reports that only 2.4 million more Americans are employed (household survey). So that computes to 2.6 “jobs” per “worker” or nonsense on its face, but perhaps indicative of the fact that folks on main street are actually taking on second jobs and side gigs left and right to make ends meet.

In any event, the incoming data is not any kind of validation of Bidenomics. In fact, the employment growth rate since February 2020 computes to just 0.35% per annum—a level barely one-sixth of the historic 2.0% gains registered during the heyday of prosperity in the 1950s through the 1970s.

More importantly, these sharply contrasting measures of the employment growth trend most certainly do not provide a reliable guide to the would be monetary central planners at the Eccles Building. After all, their entire Keynesian economic model boils down to an assessment of whether the US economy is running hot or cold; and therefore in need of stimulus or restraint.

Yet we’d say that based on the 10-month dashboard below how would you even know? There is so much imprecision and variances in the data on the Fed’s core proxy for the state of the macro-economy—the employment situation—that reading the “in-coming data” amounts to a crap shoot. Maybe its cooling, maybe it isn’t. Maybe inflation is abating. Perhaps not.

Household Survey Employment Level Versus Establishment Survey Jobs,  July 2023 to May 2024

Then again, the Fed heads put so much undue weight on the establishment survey’s “jobs” count that Wall Street has twisted this monthly data release into a veritable pretzel. That is, the gamblers down in the canyons of Wall Street don’t see strong jobs growth as a good thing, perhaps implying stronger economic growth, rising business profits and enterprise value gains in the period ahead, but simply as a proxy for the interest rate pegging machinations of the FOMC.

So they actually cheer for a weak “jobs” number—even though that implies weaker economic activity and profit levels. That’s because what the Wall Street traders actually “price-in” is not earnings but valuation multiples and carry trade costs. When the Fed plunges into a rate-cutting cycle, PE multiples expand, the carry cost of speculative positions falls to the zero bound or below and animal spirits are unleashed for another run of windfall gains in “risk assets”.