by paul gomme and peter rupert
The Bureau of Labor Statistics (BLS) announced that the establishment survey showed that payroll employment was little changed, rising 22,000. In addition, June was revised down 27,000 and July up slightly, 6,000, for a net decline over the previous two months of 21,000. The government sector declined by 16,000.
The goods producing sector shed 25,000 and has declined in each of the last four months. Since July of 2000 employment in that sector has declined by about 3 million jobs. There has been a lot of research on what is known as the “China shock” that occurred when China entered the World Trade Organization (WTO) in 2001. Here is an article discussing some of the findings of the research.
Policy Outlook
At this stage, there is little doubt that the FOMC will cut the Fed funds rate at its upcoming September meeting. The big question is: How will markets respond? If the Fed is seen as capitulating to the White House, inflation expectations will rise, and so will market interest rates. However, those on the FOMC who are calling for a rate cut can make plausible arguments unrelated to any pressure from the White House. Our view is that inflation is still not under control and has been increasing of late and so cuts to the fed funds rate is premature.
