Why Does A Good Job Report Bad For The Economy?

Question

I understand why increasing interest rates can negatively affect the economy, but why would the Feds raise the rate because of the positive jobs report?

I always assumed that more people employed means more discretionary spending leading to more corporate profits.

In: 7

Answer 1

When people say “the economy” they tend to be referring to lots of different things.

“How is my job(satisfation, and pay) ? Do I feel confident that I will have a job in the future?”

“How is my neighbor (community) doing? What about his/her/their future?”

“How are my investments (the stock market, ussuallt) doing?”

“Is GDP Growing?”

“Is REAL (inflation adjusted) GDP growing?”

Raising rated will tend to lower business investment, which will tend to make fewer people have jobs, and tend to make GDP go down.

But if jobs are being added that are inefficient — that might be good for the economy, overall.

And what the stock market does, and what GDP/Real GDP/Real GDP per Capita do, are all kinda different.

The FED is tasked with trying to get the economy to grow at its highest sustainable rate. No-one knows EXACTLY what level is sustainable. Historically, economies with overall unemployment below 4 TEND to follow that up with high inflation AND THEN A CRASH.

The fed is looking at lots of indicatorsx and many of them are doing some of the things they do right before the economy gets overhot, followed with a crash.

One of those indicators is the employment rate. The fed sees it dropping, and are trying to avoid a crash, later.

So stong employment numbers on their own are probably a good economic indicator.

Coupled with high inflation, that is often followed with a hard crash.

We are in this weird zone of what is historically high inflation, but it seems to be coming down. But, historically, high inflation, coupled with very low unemployment has been a strong signal of an overhot economy, which will crash hard, in a year or two. So do you pay more attention to “historically high inflation” or “inflation coming down”? Coulle that with “unemployment levels lower than we have seen in 70 years”…

It isnt that strong employment numbers are BAD, but combined with other economic indicators, they MIGHT mean an overheating economy, that will soon crash.