Thursday, August 16 , 2018, 12:20 am | Fair 70º


Larry Kudlow: June Jobs Tell a Bad Story

And unfortunately, President Obama's policies won't make it any better

After nine months of explosive monetary and fiscal stimulus, you’d think economic recovery would be upon us. But the June jobs report tells a much different story.

Larry Kudlow
Larry Kudlow

Nonfarm payrolls fell by 467,000, as the unemployment rate edged up to 9.5 percent. This isn’t nearly as bad as the 700,000 monthly job losses of last winter, but it’s still a rough number. Equally disappointing is the household survey — often a key turning-point signal since it captures the health of small businesses — which has dropped 811,000 in the past two months.

Donald Marron, a former senior economist with the Council of Economic Advisors and the Congressional Budget Office, calls it “a grim jobs report.” Marron, digging deep into the Labor Department statistics, says the continued decline in hours worked by private-sector employees, now 7 percent in the past year, is especially troublesome. He writes, “The economy is thus losing jobs and, for the jobs that remain, is losing hours worked. That double-whammy is bad news for the economy.”

I would add that along with manufacturing and construction, the service sector continues to shed jobs, with a 244,000 drop in June. Inside that category, the important professional and business-services sector lost 118,000 jobs. The wage data is equally disconcerting. In the past three months, average hourly earnings barely rose at 0.7 percent annually.

There are still some bright spots that strongly suggest the recession has bottomed. The ISM manufacturing report for June held a number of positives. Auto sales, retail sales and home sales look to be bottoming. And May factory orders climbed as inventories crashed. So businesses, including automakers, may be increasing production in the months ahead.

In fact, even while second-quarter real gross domestic product is expected to fall by 1 percent to 2 percent annually — much better than the 6 percent declines of recent quarters — the third quarter could show a small positive GDP score. Much smaller GDP subtraction from inventories, housing and business cap-ex bodes statistically well for growth.

But there won’t be a real recovery until jobs start rising. The unemployment rate is a lagging indicator. But jobs are the most important coincident indicator of the economy. Until they turn around, nobody should expect anything resembling real economic growth.

Leading indicators — especially monetary, financial and credit-market signals — are flashing “go” for future growth. The Federal Reserve has pumped about $1 trillion into the economy since last August. Key money-supply measures are growing at 10 percent to 15 percent annually.

Short-term rates are near zero. The Treasury curve is steeply upward-sloping. Corporate-bond-market spreads have declined significantly. And commodity prices are off their lows. This is all good.

But for all the Fed’s stimulus, which has had a salutary effect on the banking crisis, the lags are long and variable. And as former Dallas Fed head Robert McTeer has written, much of the central bank’s balance-sheet expansion is being hoarded by commercial banks, with banks holding about $800 billion more than what they’re required to hold. Until these excess reserves come way down, the impact of the Fed’s monetary stimulus will be more muted than has traditionally been the case in Milton Freidman’s monetarist model.

And as Washington economist Bruce Bartlett has written, President Obama’s $800 billion fiscal-stimulus package has yet to stimulate. Bartlett notes that 60 percent of the stimulus package goes to transfer payments and tax credits with no incentive effects. Meanwhile, the rest of the package, aimed at public works that might produce growth, is spending out at a snail’s pace.

As an old-fashioned supply-side guy who is out of date with contemporary Washington policies, I would add that Obama’s biggest mistake was not cutting marginal tax rates for individuals, businesses and investors. Instead of the fiscal profligacy that is driving spending and borrowing sky-high, lower tax rates with true incentive-reward effects would have reignited the animal spirits that are sagging so badly.

But Obama’s temporary tax credits and social spending offer no-growth effects. At the same time, the government’s fiscal nymphomania has scared everyone into thinking the United States is going bankrupt. The president himself has said there’s no money left. It’s scary enough to keep your savings under the mattress.

And if you add all the talk of nationalizing health care and energy (cap-and-trade) to the rest of Bailout Nation, it’s not hard to understand why people are shying from risk.

Stocks are the single-best barometer of our nation’s future economic health, and the stock market began to rise in early March. But in the past month, with all these new big-government tax-and-regulatory threats, the stock rally has stalled. And the June jobs report caused an immediate 2 percent sell-off for equities.

I do the best I can to be optimistic about our nation’s future. But realistically, the current picture is not particularly good.

Larry Kudlow is the founder and CEO of Kudlow & Co. LLC, an economic research and consulting firm in New York City, and host of CNBC’s Kudlow & Company. Click here for more information, or click here to contact him.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made through Stripe below, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Enter your email
Select your membership level

Payment Information

You are purchasing:

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >