When you actually break down the employment report, the one that has everyone in a tizzy about inflation, you don't see much that jumps out at you.
In fact, you see less than much. The big jump came in professional and business services, 54,000 people. These are white collar workers -- people with degrees, who, for the most part, have struggled over the years because of automation and digitization. But no more. The sector has created 560,000 jobs in the last year. It looks to be a real beneficiary of the change in the tax code.
Next is health care, with 26,000 new hires -- or 302,000 year over year. What a welcome change this is, at least for the system: It is a real slowdown in the rate of hiring for health care, given that health care is often seen as a tax on the system. It's runaway health care costs that have been the principal cause of inflation in this country. With 302,000 new employees year over year, one might begin to wonder if there isn't some sort of slowdown in the rate of expense.
We keep hearing about transportation costs rising, but when you look at the number here -- 24,000, including 5,000 as couriers -- you see very little new employment year over year, just 174,000. That growth number shows, pretty conclusively, that it isn't a shortage of drivers that is ailing the transportation industry, given that some of the 24,000 is coming from the rails anyway.
It's the new safety rules that cut back dramatically on how long truckers can drive. You'd think the actual number would be up big. But this has been the case all year, given that the industry has only hired 174,000 people. I think the whole industry got caught flat-footed about the need for more drivers. Plus the courier number of 5000 is a negative for wages, because the new delivery economy requires far more delivery people.
This number should have been up much, much more. If it doesn't go higher, then we will be saddled with some really bad inflation from the supply chain: manufacturing, to distribution, to retail, to the door.
Finally, construction was plus only 23,000, to 315,000 year over year. I say "only" because this number is a sure sign either that lending for new buildings slowing or that we are seeing a cooling in housing, or both.
No other categories, including retail or manufacturing, showed appreciable gains.
What do all of these numbers mean to the stock market? I think they mean that the bond market had some serious sellers in it that weren't all that related to this number, or the $0.73 year-over- year wage increase that the American worker has received -- hardly that additive, given that tax reform was supposed to generate better wages. I think the big rise in yields has its genesis elsewhere.
Perception, though, is everything. A belief that retail will be crushed by higher wages and tariffs is leading us down. The trucking regulatory issue is harming this entire nation's supply chain and the trucking companies simply haven't adjusted to the new world by bringing more drivers to the job. They were caught flatfooted by the work rules. There are plenty of trucks around to be driven. The rails, after years of cutting back, haven't adjusted either. They can't find workers because they terminated so many -- and those worked have moved on.
But the big job-creating industries? They have slowed. Housing? Affordability has crushed it. Autos? A once-robust industry has been enduring endless pain, including the restructuring -- read job cuts -- at Ford (F) this weekend. Obviously, retail has not made up for it. The Amazon (AMZN) pay increase may be for drivers it is adding, or for line employees, but I think tech will cap their employment.
So what are we so worried about? I think we are worried about a Fed who has told us to worry. If the Fed looked under the hood, it wouldn't be so worried about the consequences of unemployment, and should be more worried about businesses not expanding because the boom areas have too high a cost right now to expand.
With digitization and higher costs for workers in a handful of industries putting an end to fast growth, the only conclusion from these numbers is that the Fed needs to cool it -- both with the rhetoric and the actions. It needs to let the banks make more money so they can lend more to make expansion more likely for industries that are labor constrained.
In other words, if the Fed could create truckers to make up for the severe cut in hours truckers are allowed to drive, we might have very little inflation -- save energy, and even there, given heating energy collapsing, it's a real offset to higher pump prices. To lockstep rate raises is to generate a pretty severe slowdown. Maybe that's what Fed chief Jerome Powell wants. From these numbers, sadly, he's about to get his wish rather quickly.