Why We Should Worry About Another Disappointing Jobs Report

October 11, 2021 Updated: October 13, 2021


In economics, real economic return isn’t just an important metric. It’s crucial. That’s why I find it so intellectually dishonest when some economists look at the gross domestic product (GDP) and employment growth without putting it in the context of the massive increase in debt, spending, and money supply.

A stimulus plan is supposed to generate higher and faster growth than the normal trend would dictate. By definition, a stimulus plan should improve the long-term trend.

Governments have taken the recommendations of economist John Maynard Keynes to spend in recession periods and have erased from their memory the need to save and cut taxes in times of growth. Keynes opened a dangerous door when he placed government as the solution to an economic crisis, and subsequent governments have taken it to the extreme with clear diminishing returns. What we have now is a chain of massive debt and monetary stimuli that are devoted to current and entitlement spending with no real economic return, only to see increases in spending even in growth periods, where governments never save.

It’s in the context of the largest fiscal and monetary stimulus in decades that we can and should be extremely concerned about the latest jobs report.

In 2021, the U.S. deficit is expected to surpass the $3 trillion mark and 13.4 percent of GDP, according to the Congressional Budget Office. This would be the second-largest deficit since 1945, exceeded only by the spending of 2020. To this, we must add the $80 billion monthly asset purchases of the Federal Reserve. According to neo-Keynesians, such massive government “support” added to the reopening of the economy should accelerate job creation and growth, as well as increase the long-term GDP growth trend.

None of that has happened.

All we see in the U.S. economy is a direct consequence of the reopening. The economy sank due to the shutdown and is recovering due to the opening. The only thing that government and central bank actions have achieved in the meantime is to drive inflation and debt higher.

Higher debt and rising inflation aren’t drivers of longer-term growth and improved productivity trends—rather the opposite.

Imagine that you invest $6 trillion in an economy in 2020 and 2021, and the results are lower job creation while debt rises twice as fast as growth. It’s a recipe for disaster.

The September jobs report was extremely disappointing in this context of the massive so-called stimulus. Disguising it as “labor shortages” is simply a joke. A dreadful 194,000 jobs were gained versus 500,000 expected in nonfarm payrolls in September with the labor force falling by 183,000, leaving it still 3 million below pre-pandemic levels. The report shows that the economy has seen 15 months of a stagnant labor participation rate of 61.6 percent.

“In September, the number of persons employed part-time for economic reasons, at 4.5 million, was essentially unchanged for a second month in a row,” according to the Bureau of Labor Statistics (BLS).

There were 4.4 million in February 2020. These people “were working part-time because their hours had been reduced or they were unable to find full-time jobs,” according to the BLS.

We can see that these massive trillion-dollar stimulus programs generate a virtually nonexistent long-term positive impact, just a short-term bounce that lasts for less than a fiscal quarter. We have the GDPNow model estimates from the Atlanta Fed and the St. Louis Fed both coming in at only 1.3 percent growth for the third quarter of 2021. In fact, the Atlanta Fed’s Q3 nowcast of real GDP has essentially zeroed out any growth, while inflation continues to remain elevated at an estimated 4 percent for 2021. Well done, Keynesians.

It’s another disappointing jobs report that must be put into the context of the largest fiscal and monetary stimulus in decades. This makes it even poorer and shows that the net impact of massive debt and spending on jobs generates almost no multiplier effect.

Of course, Keynesians will say that the disappointing growth and jobs figures are because (a) the government hasn’t spent enough, (b) the deficit should be higher, or (c) more spending should be announced.

This time isn’t different. More government spending and more deficit don’t make the economy stronger. It makes it weaker.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Daniel Lacalle, Ph.D., is chief economist at hedge fund Tressis and author of “Freedom or Equality,” “Escape from the Central Bank Trap,” and “Life in the Financial Markets.”