U.S. Jobs Leap but Inflation Is Rising Fast

The U.S. economy created 288,000 jobs in June, and unemployment fell from 6.3% to 6.1% according to the Labor Department. Job creation for the months of April and May were also revised up by another 29,000 jobs. June marked the first time since the 1990s dot-com boom that employment has grown by over 200,000 jobs for five straight months. The extraordinary job growth will cause inflation expectations to jump and put pressure on the Federal Reserve to allow rates interest rates to rise this year.

The employment report crushed the Wall Street economists’ consensus expectation of a growth of only 215,000 new jobs and unemployment unchanged at 6.3%. It takes about 150,000 new jobs to keep unemployment level with the growth of new workers as the population expands. The 288,000 job gain is almost double population growth.

The number of unemployed Americans fell by 325,000 to 9.5 million. Over the last year, the unemployment rate declined by 1.4%, and the number of unemployed declined by 2.3 million. The unemployment rates for adult women fell to 5.3%, and men fell to 5.7%, but teenagers are still suffering 21% unemployment. Employment is strongest among Asians, followed by whites, Hispanics, and blacks.

Business services continue to be the employment leader, with 67,000 new jobs in June and a gain of 650,000 for the last year. However, industrial America is also doing exceptionally well. Jobs in manufacturing increased by 16,000 for the 11th straight month, and wholesale trade added 15,000 jobs over the month for 140,000 job gain over the last twelve months. Cheaper utility costs from the U.S. domestic energy boom are credited as a major positive for business expansion.

The Zero Hedge blog that has a strong following in the financial community expressed concern that the June labor report saw the number of full-time jobs tumble by 523,000 to 118.2 million, while part-time jobs soared by 799,000 to over 28 million.

It is my belief that the structure of the U.S. economy is changing, as the Internet job board Monster.com reports there is a huge increase in contract work that is treated as part time. This may be explained by the 10,000 Americans per day are hitting age 65 and converting to contract work instead of retiring.

The number of people available to work full-time in June but who have not been looking for a job for more than a month also dropped a big 555,000 to 2.0 million Americans.

The U.S. Federal Reserve has kept interest rates down by buying U.S. Treasury bonds and mortgages since 2012 to help stimulate an economic recovery. But the Fed has seen inflation rise from about 1.5% in January to about 2.1% in May. However, the underlying producer prices for the goods and services that tends to lead to reported inflation have been growing at 3.6% during the same period.

The Fed began tapering its “Quantitative Easing” bond-buying stimulus in January. However, rising inflation and the five straight months of rapid jobs gains is putting substantial pressure on the Fed to allow interest rates on business loans and mortgages to rise by at least 1% to prevent a surge in inflation expectations that could destroy the expansion.

The author welcomes feedback and will respond to reader comments.

From July 15th to July 29th, Chriss Street will be teaching “Entrepreneurship and Capitalist Business Strategy” at Ho Chi Mihn University in Vietnam.