At the end of the week, we got the jobs numbers and they were a little light on
the number of jobs, 187,000 as opposed to 200,000.
A little heavy actually on the wage increases.
What do you make of them? Look, nobody should change their minds
fundamentally on the basis of these numbers.
They were pretty close to expectations. As you said, economy was softer and
inflation was a bit stronger than expected.
So that's not terrific. But again, not a big deal from these
numbers. Look, I think the big story here all
along is we're trying to land the plane on the runway where we're worried that
the plane would crash short of the runway.
That certainly does not look like it's going to happen.
We've got a very strong economy and we're worried that the plane will
overshoot the runway. If you look at wage inflation, it was
faster for the month than for the quarter, faster for the quarter than for
the year and running for the quarter at about 4.9%.
That's not consistent with 2% underlying inflation or close and unemployment
ticked down, vacancies ticked up. We still have a tight labor market, a
very tight labor market, and with a 187,000 jobs created and population
growing 50 to 100000 a month, we have not just a tight labor market but a
tightening labor market. Now, it's true, as some will point out,
that we're tightening, we're tightening relative to a tight
stay at a slower rate than we were before, and that's encouraging.
But fundamentally, the plane is not yet on a trajectory to a soft landing within
the runway. Well, let's continue with your analogy
about the plane trajectory. Where do we need to get to to get on the
right to victory, to get to 2% within some reasonable period time?
What sort of numbers do you look for, for example, in wage increases?
Right now, we're going about 4.4% year over year.
What sorts of numbers do you look for an unemployment rate?
What are the key factors in figuring that trajectory?
So part of the part of the issue is that it's 4.4 year over year, but it's 4.9
quarter over quarter and it's probably closer to 5.0 month over month.
And so it's not that it is on a decelerating path.
But does that suggest that inflation may bounce back?
BROAD Broadly. Inflation is the difference between wage
growth and productivity growth. And you can argue about where
productivity growth is going to be, I guess, but it's anybody's guess
somewhere between one and one and a half percent.
So that would tell you that the kind of inflation we're having is point to wage
inflation. We're having is pointing to an
underlying inflation rate in the three and a half range, and it may not be
decelerating. Those are numbers I'll be watching
closely. I'll be watching the core inflation
numbers. Look, there's no necessary unemployment.
Nobody wants to see any unemployment, certainly not any increase in
unemployment. But what we know is that if we don't
contain inflation, it sets the stage for all sorts of very serious problems
elsewhere. And I don't think we can yet be
confident that we're not going to see a reacceleration of inflation at some
point down the road. And that's the thing that I'm focused
on, not some precise numerical target for inflation, but whether there's a
sense that this is under control. I think we'll have to wait and see.
Again, the numbers have come in a bit better over the last few months than I
would have guessed. But I find the premise, I find the
declarations of victory by some to be substantially premature.
I'm glad that the Fed is not among those who are declaring victory, and I find
the idea that this vindicates the view of those who have been unconcerned about
inflation all along to be a bit bizarre since what we followed.
Was very different policies than the ones that they have been pushing.
So another developed this week was the Fitch downgrading the US sovereign debt
and also the Treasury saying they have to borrow more money, which really
roiled the bond markets, I think it's fair to say a result, particularly in
the long and it's really it came a bit you've already said you're not so sure
if Fitch in of itself, is that significant.
But is there a fundamental underlying issue here?
You're out here as one of the leaders of the Aspen Economic Strategy Group, and
is a lot of discussion now about what's going on fiscally with the United
States? David, I have written and said that I
don't think we're on a sustainable fiscal path.
I think the Congressional Budget Office is pretty pessimistic.
It thinks the deficit is going to be in the 7% range once we get out by eight or
ten years. And they think we're going to be
reducing defense spending relative to GDP.
I think that's wrong given the threats we face.
They think that Treasury bill interest rates can average in the low twos.
I think that's not close to right, given the strains that we face.
They assume because they're required to, that all the Trump tax cuts will phase
out. I don't think that's going to happen.
They haven't really fully recognized that revenues are coming in well below
expectation this year. I think if you do the forecast right,
you're looking at a number close to ten. I don't think the United States is going
to tell bondholders they're not getting money.
I think the fact that we worked through even the incredibly toxic political
environment, the debt limit settled that issue.
I look at so-called credit default swaps on the United States and they haven't
moved. So I don't think Fitch really is
contributing usefully to the debate here.
I think they're just sort of flailing for relevance.
And in general, rating agencies have not proven very prescient.
They tend to follow markets rather than lead them.
But I do think for anyone who's concerned about inflation, for anybody
who's concerned about our resilience as a country and as an economy, you know,
we we talk constantly these days about the importance of resilience.
Well, if you think about a company or you think about a household, not being
leveraged to the hilt is an important part of being resilient.
And I wish that aspect of resilience would preoccupy our policymakers as much
as the ones that can be translated into arguments for creating some jobs in
Ohio. Of course, I think that's something that
is a very, very important aspect of resilience.