Taper Discretion Means Not Loving Payrolls Anymore

Subjective, in other words.

You would have to pick and choose from an array of economic and financial data – not money numbers – from which to divine either success or unsatisfactory results by basically winging it. As Greenspan says in the quote below, you can’t even make a single model from these aggregates because the real world, like the money in it, is constantly changing all the time.

One year you might settle upon, oh, the unemployment rate, just throwing it out there, but find out the next it may not be a suitable guide after all.

Or the Establishment Survey?

If you might recall, the Federal Reserve had for years been keen to point to both the headline payroll figure as well as the unemployment rate as evidence for QE’s post-2008 success. Going back to 2014, when the former accelerated and the latter began to drop precipitously, the two together made a seemingly formidable judgement.

Didn’t exactly work out.

The evolving patterns mean that the performance of the economy under any rule, were it to be rigorously followed, would deviate from expectations. Accordingly we are constantly evaluating how much we can infer from the past and how relationships might have changed. In an ever changing world, some element of discretion appears to be an unavoidable aspect of policymaking.

Interesting, isn’t it, that in today’s payroll report, the Establishment Survey’s deceleration revealed by it and these ongoing “misses” factor nothing in mainstream assessments of continuing double taper along with further expectations for triple rate hikes or better.

In other words, even though it just may be the labor market has really slowed down, this doesn’t seem like it will matter to those at the Fed who have given themselves the discretion to pick and choose data as they like.

What they like is, apparently, the unemployment rate and now wage data. But as I said to Emil, I don’t actually believe they actually believe in the wage data, either. I seriously question the official commitment to the unemployment rate, too.

However, these officials have to justify tapering and rate hiking if for no other reason than to quell public anxiety (political pressure?) and they’ll craft a façade of high wages and tight labor in order to do it! Whether those things are true in any real sense doesn’t necessarily matter to those whose operating theory is, by expectations, you make your own reality (by making the public believe you).

That’s discretionary policy in the 21st century; with no money to be seen nor heard, just pick whichever data, labor and otherwise, you need to fit in the expectations policy regime you are trying to sell.

The result is the unemployment rate tumbling two whole points in just the last six months!

Tight labor market? Sure, if you subjectively choose not to count the participation problem which has only gotten worse.

Next to the unemployment rate, wages. I wrote about this data earlier this week with just this set of circumstances in mind. What I would add here is more and strongly compelling evidence of SRIRL in that data: hours as much as the stubborn labor force.

Getting to that now requires completely dismissing the Big Shot of the labor data, the Star of the Show, the headline laypersons have been conditioned to almost exclusively rely upon for their quick take on what must be the economic condition.

Either way, whatever your preferred explanation, two things seem pretty clear at this juncture: the labor market just might have cooled way down; and that won’t matter one bit to the FOMC which many months ago had cornered itself about taper.

Even if there was something else on the economic horizon, say a material “growth scare”, it’s too late for policymakers since they’d already painted themselves into a narrow corner months ago.