Financial markets today only care about one thing – whether central banks will continue to provide more low-cost financing to support higher asset prices. Thus markets liked last Friday’s weak US jobs report. They hoped that the US Federal Reserve would slow its tapering process as a result.
This inverted logic explains why bad news for the real economy is seen as good news for financial markets.
But for those of us who live and work in the real economy, bad news remains bad news. Thus it becomes important to understand why US employment has failed to recover since the Crisis began in 2008
US EMPLOYMENT CANNOT BE REDUCED VIA MONETARY POLICY
One answer lies in the number of full-time jobs, which remain 3.2 million below their 2007 peak of 123.2m. And a key reason for this shortfall is shown in the official Bureau of Labor Studies charts above:
- 12% of Black Americans (purple line), and 8% of Hispanics remain unemployed (green)
- This compares with just 5% of Whites (blue) and Asians (orange)
- 10% of those with less than a high school diploma are unemployed (blue), compared to
- 6% of those with some degree (orange, green) and 3% of those with bachelor’s degrees (purple)
Blacks are 14% of the US population, and Hispanics are 17%. So this racial divide in the jobs market makes it most unlikely that employment can quickly recover. Similarly, low educational attainment cannot be changed overnight.
This, of course, is why it makes no sense for the Fed to think it can boost employment via the use of monetary policy.
Printing more money, or keeping interest rates low, will not change unemployment rates for Blacks and Hispanics. Nor will they magically provide a college or bachelor’s degree for those who left high school without a diploma.
Sadly, today’s politicians prefer to avoid hard conversations with the electorate about these structural issues. That would mean real debate, not sound-bites and Twitter-feeds. Instead, they are happy to shift the headlines to central banks.
But, of course, this hands-off approach does nothing for real investors, wanting to think beyond the next quarter. Nor does it help real companies to invest in growing markets for the future.