How to Navigate the Bizarro Economy

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It is reasonable to be concerned about a recession. Banks have been failing, offices are closing and it’s not like anything has gotten cheaper. Still, there are people like Neel Kashkari, chief executive of the Federal Reserve Bank of Minneapolis, who says the economy is doing well, that a recession is not on the horizon. It’s all very confusing. When good data comes in, it looks like it comes with an asterisk. On Wednesday, the federal government released new information about the number of jobs out there, and it was pretty good. Companies are not only continuing to hire like crazy, they actually increased the total number of job openings in April. There were 10.1 million job openings last month, according to the Bureau of Labor Statistics, nearly two for every one of the 5.8 million unemployed. People keep quitting their jobs for better ones, and fewer people are getting laid off. Good right? Actually, this news sucks, and the Dow Jones Industrial Average fell 134 points on Wednesday, at least in part in reaction to that number. We could even be approaching a recession because of it.

As a man of a certain age (I’m 36), when I come across something absurd or stupid about the way the world works, I fumble for a pop culture reference to help my confused millennial brain feel at peace. Usually this means something that happened in Seinfeld. At this point, “Bizarro Jerry” comes to mind, the episode where Elaine starts dating someone who isn’t a jerk in reverse of Jerry. “Up is down! Down is up! He says ‘hello’ when he leaves, ‘bye’ when he arrives!” Jerry complains. This is something like that. You may think it’s good that there are more jobs, but that’s where you’re wrong. These aren’t just jobs; they’re odd jobs. Eventually, they’ll create negative jobs. Up is down!

That’s because these numbers are ultimately important to the executives of the Federal Reserve system, who decide what interest rates we all have to pay. For more than a year, the Fed, led by Chairman Jerome Powell, has been trying to control inflation by cooling the economy; essentially, diverting more of people’s money away from things like jobs and salaries, and more toward paying interest. The concern was that this would lead to mass layoffs and potentially a recession. And for the last ten months or so, inflation has been coming down, indicating that the economy is cooling off. Consider jobs: Unemployment is at 3.4 percent, the lowest point in decades, and surveys show consumers are happy and confident about the future, and this is too good for the Federal Reserve.

In the absence of clarity, the markets were sold. In the hours after the jobs report was released, traders thought there was a 75 percent chance the central bank would raise interest rates within two weeks, reversing last week’s consensus view that the Fed would cool it down. (That, in turn, was reversed when Wall Street Journal Fed Whisperer Nick Timiraos reported that the central bank was likely to go on hiatus in June.) In fact, the belief that the Federal Reserve will back down and ease the economy by the end of the year is starting to become less pervasive on Wall Street.

Not everyone is convinced that the economy is doing as well as these employment numbers indicate. Earlier this month, Goldman Sachs analyst Ronnie Walker issued a note that focused on the same jobs report that sparked the market sell-off, called the JOLTS report. The survey is based on a sample size of respondents that has been shrinking during the pandemic, he wrote, which “raises questions about the reliability of the survey at a time when the focus on its monthly impressions has never been greater.” . Or, to put it another way: “Sample size is a JOKE”, wrote Danielle DiMartino Booth, CEO and Chief Strategist at QI Research, on Twitter. In fact, the survey response fell to an all-time low. The question is whether this biases the companies that are hiring more, essentially creating the assumption that because the companies responding to the survey are hiring more, all companies are doing the same.

Does this matter? Goldman seems to think the JOLTS report is too high at around 200,000 to 300,000 jobs, a mere fraction of the big picture. And anyway, it’s widely known that the jobs data is a bit falsified. Talk to anyone who is in the middle of a job search and you will hear complaints about the number of supposedly bogus job offers out there. The question is, to what extent does all of that matter? The reality is that all these warnings have been there, and the markets still fell. Remember, the Fed reacts to the whole economic picture, which shows that it’s not really slowing down significantly, at least not yet. Things may slow down soon, but a footnote in a report won’t stop the Fed from doing what it wants.