US labour market – ‘steady as she goes’

Last Friday (August 4, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – July 2023 – indicated a rather ‘steady as she goes’ outcome. A slightly weaker employment outlook compared to the beginning of 2023 but overall a very stable situation. There is no sign of recession and no sign that the misguided Federal Reserve interest rate rises are causing rises in unemployment. More evidence that monetary policy is not an effective tool.

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US labour market weakening – job openings fall and underemployment rises

Last Friday (July 7, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – June 2023 – which revealed that the the US labour market has probably reached a turning point but is certainly not contracting at a rate consistent with an imminent recession. There was a continuing weakening of net employment growth. Further, the weaker conditions are evidenced by the decrease in new job openings and rising underemployment (workers forced into part-time work for economic reasons).

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Why are the unions accepting massive real wage cuts?

In the 1890s, industrial capitalism had reached the point where the pain inflicted on workers in search of private profits by the industrialists reached a point where the workers could no longer tolerate it and they started to realise that in unity they had strength. This was a period of major industrial disputes and a burgeoning of trade union growth beyond the previously restrictive craft union base. The development of broad-based unions and their move into the political domain to give further voice to the concerns of workers marked a turning point and fostered social democratic political movements and the spread of welfare state capitalism, which lasted until the 1970s. The neoliberal period has seen many of the gains made by workers during that period wound back and now we are witnessing the consequences of that retrenchment – massive real wage cuts, profit gouging and central banks determined to further undermine the well-being of workers as they attempt to push up unemployment, in the name of fighting inflation. An inflation that is persistent only because corporations are using this period to solidify the shift in income distribution towards profits at the expense of wages. It is also apparent that the trade union movement has become co-opted and now collaborate with government and corporate bosses to oversee the deliberate cuts in real wages of their members. This is another turning point in history, where the workers’ own representatives give their support to policies that support those cuts, under the pretense that they have to be responsible. Responsible to whom? We are in a defining period at present in the class struggle and it seems that the labour side has swapped teams.

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Australia – inflation declines sharply

Today (June 28, 2023), the Australian Bureau of Statistics released the latest – Monthly Consumer Price Indicator – which covers the period to May 2023. On an annual basis, the monthly All Items CPI rate of increase was 5.6 per cent down from 6.8 per cent. There is some stickiness in some of the components in the CPI but overall inflation peaked last year and is now declining fairly quickly as the factors that caused the pressures in the first place are abating. I doubt that any of this decline is due to the obsessive interest rate hikes by the Reserve Bank of Australia. Anyway, a quick analysis of the data then some discussion of the British teachers’ pay dispute, the latest Australian Covid numbers (worrying) and some music to cheer us all up after the economics. The overwhelming point of today’s data is that this period of inflation is proving to be transitory and did not justify the rate increases. It was a supply-side event and trying to increase unemployment to kill off spending (demand) will just leave an ugly legacy once those supply-side factors abate (which they are and were always going to).

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US inflation falling fast, while in Australia the top-end-of-town are partying on massive salary increases

It’s Wednesday and as usual I consider a few topics in less depth than a single blog post, as a precursor to the music segment. Yesterday’s US inflation data from the Bureau of Labor Statistics (June 13, 2023) – Consumer Price Index Summary – May 2023 – shows a further significant drop in the inflation rate as some of the key supply-side drivers continue to abate. All the data is pointing to the fact that the US Federal Reserve’s logic is deeply flawed and not fit for purpose. Today, I also discuss the latest data on remuneration from Australia which shows that while corporate bosses have been urging wage setting processes in Australia to suppress the growth in wages for workers, an argument also used by the RBA governor recently, the bosses themselves have been getting massive nominal salary growth and increasing their purchasing power by a mutiple of the inflation rate. Modern day capitalism.

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Australia minimum wage decision 2023 – some relief for lowest paid but real cuts for others

On June 2, 2023 Australia’s minimum wage setting authority – the Fair Work Commission (FWC) issued their decision in the – Annual Wage Review 2022-23 – which provides for wage increases for the lowest-paid workers – around 0.7 per cent of employees (around 75 thousand) in Australia. In turn, around 20.5 per cent of all employees, who are on the lowest tier of their pay award (grade) receive a flow-on effect. The FWC determined that sought to protect the real living standards of the lowest-paid workers in the nation after receiving a ‘direction’ from the new Federal Labor Government to do so. While the small number of workers who actually receive the FMW were largely protected from the current inflation-erosion of their purchasing power (although not compensated for losses over the last year), the larger group of workers on statutory awards who earn the minimum award rate went backwards in real terms as a result of the decision. The major employer groups argued for very low nominal rises, while at the same, as they are enjoying booming profits. A scandalous indictment of our system.

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US labour market – perhaps at a turning point with unemployment rising

Last Friday (June 2, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – May 2023 – which revealed that the the US labour market may be at a turning point but is certainly not contracting at a rate consistent with an imminent recession. There was a continuing weakening of net employment growth, even though the payroll and survey data were in conflict. The rate of decline though, is currently consistent with an imminent recession. We will see in the June figures whether the slowdown has become a trend.

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Rising labour costs have only the smallest impact on services inflation

As the inflation episode starts to abate, central bank governors have been keen to advance narratives to justify why they would continue hiking interest rates, especially when it is pretty obvious that the drivers of the inflation were mostly coming from the supply-side and suppressing aggregate spending (via the higher rates) would not be a very effective measure to deploy. This is quite apart from the debate as to the effectiveness of using interest rates to stifle spending, which is a separate discussion with no clear conclusion other than probably not. As I have noted previously, it was hard to argue that inflation was accelerating out of control when it had started to decline many months ago. So they had to come up with a different narrative – which was that while inflation was falling it was not falling quickly enough. That is the current story line the officials trot out. And that allows them to claim that if it doesn’t fall quickly then two things will be likely: (a) workers will build the higher inflation into their wage demands and set off a wage-price spiral that becomes self-fulfilling even after the supply-side factors (Covid, Ukraine, OPEC) abate, and (b) that people would start to expect higher inflation was the norm and build that into the contractual arrangements and pricing. Neither behavioural phenomenon has shown any sign of becoming entrenched, which leaves the central bank officials without a cover. And even research from central banks themselves is demonstrating that there is not ‘high inflation’ mindset taking over.

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Inside the Bank of England governor’s dreams – the wage-price spiral we cannot see

Many central bank officials have been trying all sorts of conditioning narratives to convince us that their interest rate hikes have been justified. Now they are actually defying the information presented in the official data to simply make things up. Last Wednesday (May 17, 2023), the Bank of England governor gave a speech to the British Chamber of Commerce – Getting inflation back to the 2% target − speech by Andrew Bailey. It came after the Bank raised the bank rate by a further 25 points to 4.5 per cent the week before. In that speech, he admitted inflation was declining and the main supply-side drivers were abating. But he said the rate rises were justified and unemployment had to rise because there was now persistent inflationary pressures coming from a “wage-price spiral”. The problem with this claim is that there is no data to support it.

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No evidence of an imminent wages breakout in Australia despite the claims by the RBA to justify their hikes

Today (May 17, 2023), the Australian Bureau of Statistics released the latest – Wage Price Index, Australia – for the March-quarter 2023, which shows that the aggregate wage index rose by 0.8 per cent over the quarter (steady) and 3.7 per cent over the 12 months. The media are touting how strong the wages growth is but they should be focusing on the fact that Australia’s nominal wage growth remains well below that necessary to restore the purchasing power losses arising from price level inflation. Even though the inflation rate is falling significantly and nominal wages growth has picked up a bit, the problem still remains – real wages have now fallen for 8 consecutive quarters (2 years). Further with the gap between productivity growth and the declining real wages increasing, the massive redistribution of national income away from wages to profits continues. Further, the conduct of the RBA in this environment is contributing to the damage that workers are enduring. They continue to claim there is a threat of a wages breakout and so interest rates have to keep rising to create the necessary unemployment increase to prevent that from happening. It is just a ruse. The rising unemployment will be for nothing other than to repress real wages furthers. And meanwhile, the RBA interest rate hikes are driving up prices (for example, via the rent squeeze).

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