Pol­i­tics trumps jobs

Financial Mirror (Cyprus) - - FRONT PAGE -

So, it was a false alarm. By that I do not mean the Brexit vote, which re­mains, for rea­sons ex­plained at the end of this note, the big­gest threat to the world econ­omy and to risk as­sets since the global fi­nan­cial cri­sis. The false alarm was the brief panic about a US re­ces­sion caused by the slump in em­ploy­ment growth re­ported last month.

As I said at the time, there were four pos­si­ble ex­pla­na­tions for the shock­ingly weak May pay­rolls. Sam­pling er­ror alone means that monthly re­ports will un­der­state true em­ploy­ment growth by 115,000 roughly once ev­ery year. Se­condly, as the US ap­proaches full em­ploy­ment, monthly job cre­ation is bound to slow from the 200,000 monthly av­er­age since 2010 to around the 100,000 rate im­plied by la­bor mar­ket de­mo­graph­ics. Thirdly, pro­duc­tiv­ity may be pick­ing up from the abysmal and anoma­lous lev­els of the past few years, and if so 2% to 3% GDP growth would be con­sis­tent with slower em­ploy­ment growth. Fi­nally, the US econ­omy re­ally could be slid­ing into a re­ces­sion, or at least hit­ting some se­ri­ous speed bumps, per­haps be­cause of the pol­icy mis­takes and cap­i­tal mis­al­lo­ca­tions sug­gested by Charles.

While just one ad­di­tional data point is not suf­fi­cient to draw de­fin­i­tive con­clu­sions, Fri­day’s blowout pay­roll re­port of 287,000 (or 252,000 when ad­justed for re­turn­ing Ver­i­zon strik­ers) sup­ports the first purely sta­tis­ti­cal ex­pla­na­tion (see chart). It is also con­sis­tent with the idea of a grad­ual ta­per­ing of job growth to­wards a steady-state path well be­low 200,000, since the av­er­age monthly job growth (ad­justed for the Ver­i­zon

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