What job growth? What inflation?

What job growth? What inflation?

Far be it for me to say “I told you so” but I told you so. Recall I wrote that the monthly jobs report is usually a fabrication. The results come from surveys and are always revised downward when the real numbers come in. On July 7 I said that the jobs report was a lesson in how to lie with statistics with employment figures revised downward by 55,000 jobs on average. Folks are highly critical of the Fed for its macro models but I have heard hardly a peep about the models used by the Labor Department in its surveys.

When the numbers were announced for May and June and the administration was doing high fives, I asked what would be the revisions? Turns out it was a whopping 258,000 lower making a three month growth in jobs of only 35,000. Recall that most of the job growth was in state and local government jobs. The jobs figure for July was a paltry 73,000. Now if that is the estimate, then what will be the revision? Well Trump did not like the 73,000 number and fired the commissioner of the Bureau of Labor Statistics. Mind you Trump fired the commissioner Erika McEntarfer and accused her of being a Biden appointee who was manipulating the numbers. Strange, but didn’t Trump like the numbers she manipulated (estimated) the previous month? The commissioner should have been fired long ago for not dealing with the poor estimates from the job surveys. As a good friend points out her firing smacks of Bolshevism with the disgraced commissioner sent to the gulag. Would that be Alligator Alcatraz?

Now Trump’s policies wouldn’t have anything to do with the poor job numbers would they? I can just hear the chorus now howling for the Fed to cut the target Fed funds rate. Indeed, Wall Street traders just increased the odds of a rate cut from 38% to 70%. But wait a minute. The inflation numbers have just come in as well. The Bureau of Economic Analysis reports that in June the Personal Consumption Expenditures index (used by the Fed) went up at a 3.4% annual rate. Now it was 2.0% in May and Trump and the MAGAverse were beating their chests and shouting to all the doubters (like me) “Where’s the inflation?” Well, here it is. Trump won’t like these numbers either. The Bureau of Economic Analysis is within the Department of Commerce. Watch out! The director is Vipin Arora. Look for Trump to fire him too.

Analysts say that June inflation is due to the first signs of the price increases due to the tariffs. Really? Just remember that importers and companies are bearing most of the initial increase in cost and only passing a small portion on to consumers. Imagine what the inflation figures will be once the full impact of the tariffs are passed on to the consumers. The analysts also note that domestic producers are starting to charge higher prices for their products as the foreign competitors’ goods are priced even higher. Surprise surprise. Breaking down the numbers, goods prices went up 4.8 percent in June compared to 0.9 percent in May. Durable goods prices went up a whopping 5.7% compared to 0.3% in the previous month. In contrast prices on services went up only 2.8% compared to 2.5% in May. Again recall the tariffs are on goods and not services.

These numbers are bad enough but are they understated too? Probably. The Bureau of Labor Statistics has reported that it is missing 15 percent of the data it normally collects on prices due to staffing shortfalls caused by Trump’s firings and a hiring freeze. This hasn’t gone unnoticed as democrat senators have questioned the accuracy of the data. Clearly, they are implying that the missing data must be due to the Trump administration trying to lie about the magnitude of the change in inflation. They wouldn’t do that. Would they?

What is the Fed to do? The abysmal jobs numbers say cut, cut, cut! But the inflation numbers say raise the rate. If the Fed were using the Taylor rule which says if the actual rate of inflation is above the target rate, it should increase the Fed funds rate. Trump would have a cow. If the Fed were reluctant to cut before when it was adopting a wait-and-see approach to whether the tariffs were going to cause inflation, isn’t the wait over? What is going to be this Fed’s main objective, job growth or inflation control? This is another case in which their mandate of full employment and stable prices is in conflict. If the Fed starts a policy of easy money in hopes of stimulating employment – one of Trump’s many demands – then what of inflation? Regardless of what action taken by the Fed, they will be the scapegoat. Trump will yell that if they had cut when he wanted it to then none of this would have happened. Of course that is BS but it is what we have come to expect from this president and his economic policies. I bet Jay Powell is thinking that May 2026 won’t come fast enough.