The economic news today is best described as, well, if we're honest it's probably best to say that it sucks. Because if the economy is really working as these numbers say it is then this is about as good as it gets. Now, it might be just one off items causing what is being reported. But if this is the general state of the economy then it's very difficult to see what the Federal Reserve can or will do about interest rates. Because we've got two numbers telling us that growth isn't all that good, if there is in fact any economic growth at all. But then we've also got the news that wage rises are outstripping productivity. Something which can be explained by the economy working at close to capacity. This really isn't where we'd like to find ourselves:
Businesses added just 169,000 jobs in April, according to payroll processor
ADP . Economists had expected 198,000 new jobs.ADP revised down its March report to 175,000 jobs from 189,000.The survey measures only private employment and excludes government hiring.
The jobs trend has been downward since November, when private employers added 284,000 jobs, according to ADP. Each month's ADP survey has been lower since then.
We could ignore one or two months of job creation being a bit weak. Some or other specific circumstance can always be found for a single number after all. But a trend like that does rather indicate that this sort of low rate of job creation is the new normal. That in itself isn't all that bad. we're not particularly surprised by it in fact, given that we think that there wasn't any economic growth in the first quarter after yesterday's trade deficit figures. It's the next bit that's really unwelcome:
Productivity in the U.S. fell in the first quarter, triggering the largest back-to-back decline in more than two decades and pushing up worker costs as the world’s largest economy almost stalled.
The measure of employee output per hour decreased at a 1.9 percent annualized rate after a revised 2.1 percent drop in the prior three months, a Labor Department report showed Wednesday in Washington. It matched the median forecast in a
Bloomberg survey of 57 economists. Expenses per worker increased at a 5 percent pace, more than estimated.
We all want wages to rise: that's the point of having this economy thing in the first place, so that the average guy and gal gets richer over time. However, we want wages to rise because productivity is rising, not because labour is becoming more expensive relative to what labour produces. That's also known as inflation and we don't like it. So, a combination of a rising cost for labour, however mild, with a fall in productivity, is simply something we don't want to see.
And this causes problems for the Fed in setting interest rates. For that rise in the real cost of labour argues for a rise in interest rates. But the low job creation number and the absence of any economic growth argues for possibly further stimulus and certainly against an interest rate rise. So, as so often, we're getting conflicting information about what they should be doing.
Once again simply proof that we don't have the information we need to manage the economy in a detailed manner. We can all say that government should make the economy better as a matter of public policy. It's just that we've not got, clearly and unequivocally, the information we would need as to which policies would in fact make the economy better. Bit of a blow for those who would like to be the economy's planners but there we go.
