The politics of job numbers

It appears that one more norm that we’ve depended upon has just hit the dust. Did you hear? Following a weak jobs report, Trump has accused the commissioner of the Bureau of Labor Statistics, Erika McEntarfer, of cooking the books and fired her. It happened on a Friday afternoon, and given Trump’s firehose of social media output, who knows if the story of McEntarfer’s firing will have any legs. It may very well be forgotten by Monday, but it shouldn’t be. This story deserves to be remembered.

Actually, by my reading, the report wasn’t all that bad. I think the most negative aspect was the downward revision of the reported job growth numbers for May and June; but following those revisions, the July figure for total non-farm employment improved, increasing by a modest 73 thousand people. The report also showed the unemployment rate edging up from 4.1 percent in June to 4.2 percent in July. Any increase in the unemployment rate isn’t something we should welcome, but we’re still operating at a historically low unemployment rate. Not good enough for our dear leader, however, so somebody’s head must role.

What’s a little bizarre is that the picture painted by these data is one that, if anything, would likely tilt the Fed toward easing (i.e., lowering its key interest rate target) sooner rather than later (all else equal); whereas indications of a stronger economy would likely cause the Fed to delay that action. A more cogent reaction to the data by Trump would have been pointing out that his instincts to lower rates now have been justified by these data; but he’s not saying that. Instead, his insisting that these data are wrong – that correctly measured data would show stronger job growth and lower unemployment than what the July report showed -- and that we need to have easier monetary policy anyway. This line of thinking is a testament to the fact that, as far as economics is concerned, Trump doesn’t have a clue. (His posture with respect to tariffs just reinforces this assessment.)

The Fed has a dual mandate: to seek full employment and price stability. Easy money (lower interest rates) stimulates economic activity and thus generally reduces unemployment, but at the risk of raising inflation. Conversely, tight money reduces inflation, but at the risk of raising unemployment. Given this reality, the Fed strives to operate on a knife edge, trying to make sure that neither of these objectives differs too markedly from the Fed’s hoped-for targets. Trump seems to be operating under the illusion that the Fed can improve on both of its objectives at the same time. Someone needs to clue him in on the fact that, unfortunately, that’s not the way it works.

I’m with the majority of those who sit on the Fed’s Board of Governors – that it’s premature to think about lowering interest rates now. While the latest BLS report may indicate that the economy seems not to be quite as strong as had previously been thought, the lasts inflation report from the Bureau of Economic Analysis shows signs that inflation ticked up in June. Thus, we’re seeing reasons for concern about both elements of the Fed’s mandate. To my mind, the calculus hasn’t shifted far enough to justify pushing the Fed to prioritize one concern over the other. Chairman Powell stated that any subsequent change will be contingent on how the Fed reads the data as they become available. Seems eminently reasonable to me.

Politicizing economic data – which is exactly what Trump has done – degrades the capacity to make reasonable and appropriate policy decisions. Such decisions rely on assessing economic data that hasn’t been compromised by fear or favor. Regrettably, we seem to have turned that corner. The same concern applies if Trump ends up replacing Powell as the Fed Chair with some sycophant lackey who is willing to accommodate to Trump’s crackpot economic instincts, with little or no regard for the prevailing economic circumstances. We need untainted economic data along with policy makers who can be counted on to assess those data appropriately. Unfortunately, we’re precariously close to the point of no return – if we’ve not gotten past it, already.