To justify hiking rates, Kevin Warsh and the Fed painted a rosy picture of the labor market. Interestingly, Warsh did so by citing record low jobless claims. To wit:
Unemployment claims, on a four-week moving average, are running at levels consistent with full employment. So, the labor side of the Fed’s congressional remit is in good shape.
are near historic lows, as shown below, and the news is even better as a percentage of the consistently growing labor force. However, treating them as proof the labor market is healthy is misleading. Jobless claims only measure layoffs. They say nothing about hiring. While jobless claims may signal that few people are being fired, they don’t tell you whether people are being hired. Consider that the Hires level is at a 12-year low, and sits at the same level today as it was in 2014, when GDP was nearly half of what it is.
Economists deem this condition the “low-hire, low-fire” labor market, and the Cleveland Fed’s research bluntly calls it “half a misnomer.” The low-fire half is accurate, but the low-hire half is the part Warsh skipped.
Indeed’s Hiring Lab put the risk of this frozen labor market as “it’s only stable as long as nothing pushes on it.” The lack of hiring leaves no cushion if layoffs increase. In addition to fewer layoffs depressing the jobless claims data, we must also consider the lack of incentive to file for jobless claims. Per our Commentary in 2024:
Bloomberg estimates that the average wage coverage gap is bigger than ever at $1,400. Simply, unemployment claims payouts have not kept up with inflation. On the contrary, gig/part-time jobs have. Therefore, laid-off workers are better off working for Uber and other flexible gig economy jobs than filing claims.
What To Watch Today
Earnings
Economy
The Week Ahead
This week will largely lack relevant economic data and corporate earnings. Likely taking center stage will be a host of Fed speakers. We will be keyed on one of the more hawkish members, Beth Hammack, President of the Cleveland Fed.
Hammack has been one of the Fed’s most consistently hawkish voices in recent months. To wit, she dissented in favor of a hike at the July meeting specifically, arguing “inflation has remained stubbornly above 2 percent for more than five years” and that she’s “not confident it will return to our objective on its own.” She’s flagged supply-side pressure from energy prices and broadening demand-side pressures based on what she’s hearing from businesses in the Cleveland Fed district. Given that view, expect her speeches next week to reinforce her hawkish tone and possibly address whether Wednesday’s hike and another would be enough to satisfy her call to action. Her remarks are also worth watching for any direct comment on the Iran-driven oil spike, since she’s already on record treating energy costs as a real, not transitory, inflation risk.
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