Latest Jobs Report Has Real Problems Under the Hood

On the surface, the November jobs report looks pretty good, with a gain of 263,000 non-farm payrolls. If you look under the hood, though, there are a number of problems with this report. The biggest is that the household survey, which picks up small owner-operated businesses, fell by 138,000 jobs after an October drop of 328,000. So, in the past two months, that survey has lost 466,000 persons. At turning points in the economy, the smaller household type businesses are frequently the leading indicators — and, in this case, the trend is worsening. Now, the unemployment rate, which comes from the household survey, held steady at 3.7 percent. Then, again, that’s because of the drop in the labor force. Back to the corporate payroll number: Over the last three months, that has increased an average of 272,000 compared to a six-month average of 323,000, compared to a 12-month average of 408,000. So, clearly, there is a slowdown. For Chairman Jerome Powell’s Federal Reserve, there are significant wage inflation pressures. Production workers’ average hourly earnings jumped seven-tenths of 1 percent, and stand at 5.8 percent above a year ago. That’s still below the 7.7 percent October CPI, so more wages are buying less food, groceries, and gas at the pump. Mr. Powell has indicated several times, including this past week, that he is concerned about sticky inflation, predominantly in services, because of rising wage costs. Caveat emptor. The Fed will do a 50-basis-point hike this month, which is lower than the last many upward moves. The way they see the world, though, wage inflation remains a big threat, and that strongly suggests they are going to keep tightening interest rates. I don’t agree with their model. I have no problem with rising wages, as long as the workforce is generating the productivity to pay for the wage hikes. Heck, I’m even in favor of seven days of paid sick leave, contra President Biden and the decision of Congress to jam an unfair, union-busting agreement down the throats of the railroad workers. I digress. Last week, I talked about three important economic indicators that seem to spell recession for next year. One is the conference board’s index of leading indicators, which is plunging. The second is the Fed’s M-2 money supply, which has crashed to below zero from 30 percent growth. The third is the so-called inverted yield curve — please stay with me on this — where the 3-month Treasury bill rate is higher than the 10-year bond yield. It’s a classic New York Fed model with an incredible batting average. When the curve inverts, it predicts recession in the next year. Right now, the 3-month T bill is 4.30 and the 10-year is 3 and a half percent. An ominous sign. Meanwhile, congressional Democrats want to launch a lame-duck spending spree. Tragically, it looks like Republicans, especially the Republican Senate leadership, are going to go along with it. Unbelievably, House Republicans are restoring pork-barrel earmarks. This is exactly the wrong medicine for an ailing economy suffering from high inflation. Exactly the wrong medicine. In a smoke-filled dark room, out of sight of the public, in the basement of the Capitol, we could be looking at a couple of hundred billion dollars of various social and pork-barrel spending, on top of the $5 trillion already spent by the Biden crowd in the last two years. Plus, it could be worse. There’s a lot of talk of adding on to it a child tax credit that would run about $1.5 trillion, with no work requirements. Plus lots more money for Ukraine. Who knows, they might even stuff John Kerry’s global warming climate reparations into this monstrosity. Nobody knows. There’s still a $100 billion bill outstanding for Mr. Biden’s beloved Paris Climate Accord back in 2015. It’s wonderful to see the Biden-Kerry “America Last” policy of paying hundreds of billions of dollars to bribe poorer countries not to ever use fossil fuels. Meanwhile, the Bidens are still doing their best to stop any fossil fuel production here in the United States, which would bring prices down by boosting production and ending shortages. Every household would benefit. Look, with the country on the edge of a high-inflation recession, this is a time for free-market, supply-side economic growth policies. End the war against fossils, keep the Trump tax cuts, stop the regulatory jihad against businesses, and cut spending, alongside re-imposing of work requirements. That’s an agenda for economic growth. That’s the stewardship that the GOP should be touting, in both the Senate and the House. Wake up, fellas. From Mr. Kudlow’s broadcast on Fox Business News.

Latest Jobs Report Has Real Problems Under the Hood

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