May Jobs Report Adds 339k Jobs, But Unemployment Rate Rises To 3.7% (Avg Hourly Earnings Cool To 4.3% YoY, Too Bad Core Inflation Still Sizzling At 5.5%)

The May jobs report is out and, under normal circumstances, would led The Fed to raise rates. But these are not normal times, my friends.

The bad news? While US average hourly earnings YoY cooled to 4.3%, inflation is still roaring at 4.9% (headline) and 5.5% (core). So Americans are still losing ground to inflation.

The unemployment rate rose to 3.7% in May while the underemployment rate rose to 6.7%.

With unemployment rising to 3.7%, the Taylor Rule implies a Fed Funds Target rate of 10.12%. We are currently at 5.25%. Or just a little over halfway there. But The Fed is talking a pause in rate hikes.

The Fed doesn’t give much of a hoot about wages. They care about the PCE and PPI. As long as the Fed Rate is close to, or above those indexes, inflation will/should cool. Retarded wages actually helps in that case.

Looking at the large retailers we can see the light in the tunnel coming at us. And it’s a big light. And it ain’t the “end of the tunnel.”

I’ve changed my tune about fighting inflation. Previously, I was an advocate of the Taylor Rule. We’ll sort of. I thought higher interest rates and reduced government spending, i.e., deficit spending requiring quantitative easing (printing money), was needed to reduce inflation. Now I am solely in the camp of severely reduced government spending. Inflation will be more rapidly decreased though massive cuts in government spending. Those massive cuts necessitate the elimination of regulations and other productivity stifling consequences of government. It also increases person freedom and liberty.

It is through increased productivity in the private sector that will deliver lower cost goods and products. Part of the increased productivity pie is increased personal income. Individually, when people become more productive they can fairly demand higher pay because they are adding value and profit to a business. The case for many today is demanding higher pay is more of a function of increased personal expenses due to inflation. That creates an inflationary cycle since increased labor costs due to inflation begets more inflation.

Keeping it simple: government spending that doesn’t build a damn thing, only encourages dependency, and reduces productivity is the target. It is also a huge portion of government spending. Reducing government spending eliminates multiple problems at the same time with few negative side effects, i.e., lazy ass government employee unemployment. That, by the way, is better that productive private sector worker unemployment. Increasing interest rates has multiple consequences. It reduces economic growth by pricing business expansion higher than the return on investment in low profit margin businesses - which there are many, particularly small businesses. Another major consequence is it devalues assets, which specifically places banks at risk for default.

Given all the above, there is a place for interest rates to be above near zero. It literally means money has value.

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