A decline in the self-employed gig economy could be pulling more workers into payroll jobs while also increasing the unemployment rate, Breitbart Economics Editor John Carney explained during a Friday discussion on Larry Kudlow’s Fox Business show.
Friday’s jobs report from the Labor Department revealed that the U.S. economy added 339,000 workers to the payrolls in May, exceeding Wall Street’s prediction by over 190,000 jobs. And economic forecasters were further confounded by the fact that the unemployment rate has increased even as the economy added more jobs than expected.
Kudlow speculated that the payroll growth could be due to more Americans working two jobs, and perhaps this could also explain why the Labor Department’s payroll survey showed such a strong increase, while its household survey—which covers self-employment and small family businesses—dropped by 310,000.
“The payrolls are about big companies, right? A lot of people have two jobs. And that’s scored in the payroll survey, but you wouldn’t find that in the household survey. Could that be a factor?” Kudlow asked Carney.
Carney agreed that it could be a factor, but he offered another theory that would explain the drop in the household survey numbers and the rise in unemployment.
“One of the biggest drivers here is, I think, that a lot of people are being pulled out of the gig economy, out of self-employment, and into the payrolls. And some of those people are losing their jobs,” Carney explained. “So, one of the things I think we’re seeing — the reason for the divergence is that the self-employment economy is not doing very well right now. So, a lot of people with small businesses are getting squeezed.”
“The household survey unemployment rate reflects that,” Carney added. “And a whole bunch of them are moving into payrolls; they’re taking jobs. So, that’s how you can get both the unemployment going up and the payrolls going up.”
Carney also argued that the strength of the jobs report makes it all the more likely that the Federal Reserve will hike interest rates at its June meeting in order to meet its two percent inflation target.
“If I were the Federal Reserve looking at this number, I would be very worried because this is the fourteenth month in a row in which the jobs numbers have beat expectations—20 out of the last 21 months,” Carney said. “This is not an economy that appears to be cooling off—at least in the labor market part—fast enough to get us to two percent within a reasonable amount of time.”
Carney made this same point in Friday’s Breitbart Business Digest:
If the Fed is truly data dependent, it will hike at the next meeting. A failure to hike will cast doubt on the credibility of the Fed’s commitment to making policy based on incoming data. It’s possible that the Fed could attempt to pause or skip hiking while delivering a super-hawkish statement, economic projections, and press conference. That would be putting a lot of stress on the ability of rhetoric to outweigh actual policy.
However, economist Joe LaVorgna disputed the wisdom of another Fed hike, and he also poured cold water on the seemingly hot jobs data and the conclusions being drawn about the overall health of the economy.
“I looked at the report and said, oh my God, that payroll number looks really good, but everything else looks really poor,” LaVorgna said. “And what’s interesting is the wage numbers are softening. Untold is what happened on Thursday with the productivity and labor cost figures. The compensation numbers were revised down massively, and that was nominal numbers that got revised lower.”
“So, I see an economy that still looks on the surface to be generating a lot of jobs,” he continued. “But, boy, underlying growth, GDP, gross domestic income, broad labor trends — they look terrible. And if the Fed is going to hike rates in June, they’re going to further invert the curve.”
Such a move, LaVorgna argued, could cause the banking crisis to “fester.”
Kudlow also sounded a populist note, arguing that the Fed shouldn’t be trying to put Americans out of work in order to fight inflation.
“I don’t want the Fed to target jobs. I want them to target prices,” Kudlow said. “And that’s the reason that I would prefer to see a pause right now—because commodity indicators have been falling, the money supply indicators have been falling, and the yield curve has been deeply inverted. Now, those models aren’t perfect. I get that. There’s no such thing… But I just hate to see them say, ‘Oh, jobs went up and we got to tighten!’ What is this? They’re opposed to jobs? Really? What is wrong with jobs? What is wrong with people working? I always say that. Why is the Fed insisting on these old Keynesian left-wing Phillips Curve nostrums?”
LaVorgna explained that the Fed’s current approach dates back to former Federal Reserve Chairman Alan Greenspan’s years leading the central bank.
“Early on in the Greenspan [years], they moved away from a rules-based approach and became much more discretionary,” LaVorgna said. “It was replaced with these Phillips Curve output gap frameworks. They don’t work. There was an interesting San Francisco Fed paper that came out this past week that basically said that inflation — only a couple of tenths [of it] is due to higher wages. Of course, it didn’t get much press. But the Fed is fixated on this. It’s an institutional problem, Larry. So, they believe too many jobs cause inflation, too much credit and money creation.”
“And look at what a lousy job they’ve done,” Kudlow shot back. “Institutionally, what a terrible job they’ve done.”