No Workers = No Growth

Friday's jobs report showed the unemployment rate falling to 4.3%. That's lower than at any time during the housing boom. It's almost as low as the peak of the tech boom. Indeed, other than during a brief period around 2000, it's the lowest unemployment rate since the 1960s. Even the U-6 rate is back to the levels of the summer of 2006.

So we must be producing lots of jobs, right? No, payroll employment rose by just 138,000 in May, well below the pace of the previous 7 years. Yes, one month is not significant, but job growth over the past three months has averaged only 121,000. Companies cannot find workers.

In 2018, we'll look back on these job gains as boom numbers, as things are going to get even worse. And if Trump cracks down on immigration, growth will slow to a near standstill. The second quarter GDP numbers are expected to be strong, but don't be fooled by that (seasonal) head fake - we are entering a very slow growth period.

After Trump was elected there was a big "reflation trade" and the 10-year bond yield rose to over 2.6%, Today it's down to 2.17%, as the yield curve gets flatter and flatter. At the time, I thought people were forgetting about monetary offset. But even I missed the fact that Trump was too incompetent to get his supply side package through Congress. I expected a few tenths of a percent more RGDP growth, now I doubt even that.

So why are stocks doing well? In my view it's the same story as what we've seen since 2009:

  1. Markets are gradually realizing that ultra low interest rates are the new normal.
  2. In the "FANG" economy, American corporations don't need fast growth to make big profits.


  1. This will end up being the longest economic expansion in American history.
  2. This will end up being the weakest economic expansion in American history.
  3. Interest rates will stay low.
  4. Unemployment will fall to 4%.
  5. Inflation will stay low (because the Phillips Curve model is wrong.)
  6. Janet Yellen will end up producing the most stable rate of NGDP growth of any Fed chair in American history.

PS. Unlike during 2008-14, there's nothing wrong with the current stance of monetary policy - the problem is the regime.