Nobody should be surprised by the latest jobs numbers. As the economy unwinds the post-Covid inflation bubble, the unemployment rate once again ticked up to 4.2 percent as demand continues to soften.
This is what historically, almost always happens after the economy overheats from inflation: Households max out their credit cards, purchases slow down and so does the economy until finally, unemployment rises, the cycle ends and begins anew.
Since Jan. 2023, unemployment has increased 1.3 million, almost all of which has been during the Biden administration, although there is likely more to come.
The hope should be that with ongoing labor shortages amid the Baby Boomer retirement wave,itwon’tgotoohigh.
The first signals of a slowdown or recession came in 2022 when the spread between 10-year and 2-year treasuries first inverted, and then the signal for higher unemployment came in 2023 when the inversion began narrowing until the yield curve normalized in 2024.
As interest rates continue collapsing amid the current flight to safety along with commodities prices collapsing, inflation expectations are predictably dropping, which is the good news.
Whenpricesincreasesslow downasmuchastheyhave,historically, thathasalwayscoincided with recessions and higher unemployment, the only proven method of ending inflation. This is years in the making.
In 1981, Ronald Reagan andPaulVolckertriggeredarecession with double digit interest rates and prices came tumbling down. They ripped off the band-aid and did what was necessary, although it was not popular at the time as unemployment rose, but the economy took its medicine. Well, here comes the airplane… “Politically, getting inflation down is more important than avoiding a recession in the first year. Richard Nixon, Ronald Reagan, George W. Bush and Barack Obama all had recessions either occur or that were ongoing their first years in office, and all went on to get reelected relatively easily. Whereas, Gerald Ford, Jimmy Carter, George H.W. Bush and Joe Biden all had inflation outpace incomes during their terms, and all were one-term presidents.
Choose your poison.
Robert Romano is the Executive Director of Americans for Limited Government.
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