Weak BLS Data And Rate Cuts

Troubling data from Friday as the US Bureau of Labor Statistics reported that the economy added a mere 22,000 jobs in August. July’s figure was revised to show an uptick of 6,000 positions for a total of 79,000 new hires. June’s data was revised to show a loss of 13,000 positions, which comes after the prior estimate was also revised to show a 27,000-position decline. Unemployment in the US is now 4.3%.

This is the first published jobs report since Trump fired BLS commissioner Erika McEntarfer. As I explained in an earlier post, the formula used by the BLS is prone to errors and can almost be chalked up to a wild guess. Still, the new commissioner was unable to toy with the data in a meaningful way to quell public fears. Unless, of course, the intention is to pressure the Federal Open Market Committee into lowering interest rates to combat economic weakness.

Workforce softness often leads to lower rates as the Fed mistakenly believes that cheaper borrowing costs will ignite business investment, consumer spending, and strengthen businesses to the point that they need additional employees. Borrowing costs are not the problem.

The Fed has never truly understood the business cycle. They continue to cling to this academic fantasy that lowering interest rates will magically inspire business to invest, hire, and expand. The problem has never been the cost of borrowing. I have spoken with CEOs around the world, and not once have they said they would expand simply because money was cheaper. They expand when they see demand for their products and confidence in the future.

Consumer spending cannot increase amid the current cost of living crisis. The majority of Americans are living on a paycheck to paycheck basis and no longer have confidence in the American dream. They cannot even hoard as they must spend on the essentials. America’s consumer-driven economy cannot survive when the consumers have no disposable income. Manufacturing has not been resuscitated and America’s ability to produce is weak. Companies are saddled with regulations and taxation that have driven up operational costs, causing many to turn to cheap overseas labor or automation. It may be cheaper to borrow but confidence has been lost and businesses are not eager to go deeper into debt by borrowing more and more.

Lower rates hurt retirees and savers. Large corporations borrow to buy back their own shares and are not borrowing to expand. The small and medium businesses have been treading water for the past five years. The government benefits more than the people from lower rates as it remains the top borrower, using public funds to deepen the nation’s insurmountable debt crisis. Cheap money cannot prevent the inevitable downturn on the horizon.