June Jobs Report

 
Another terrible jobs report, only 80,000 jobs were added in June. The numbers for previous months were barely changed (red line). Just like last year, the economy has stagnated after a strong winter. The trend is now pretty ingrained and growth forecasts the world over are being cut. In other news inflation has decreased and is below the Fed’s low 2% target. So unemployment is above target (ie. “The natural rate”) and inflation is below target. The Fed is now missing on both ends of its mandate rather than just the employment side, yet it doesn’t act. And crazy people continue to worry about inflation.

At the end of this year we face what is being appropriately called a “fiscal cliff”. Taxes across the board are going to go up and discretionary spending (the part that isn’t contributing to our unsustainable debt) will be slashed. The combined effect of this will likely put us back into a recession. The CBO recently estimated that the full effect of the fiscal cliff will cut growth to 0.5% of GDP next year (it is currently around 2%). And unemployment will rise above 9%. What CBO projections don't include is psychology. If growth decreases that suddenly and unemployment increases the negative effect on confidence and expectations could easily put the economy into a recession. If politicians continue to fail us, this may be the best economy we'll see for years.