Hardly Breaking News

That the US jobs report last Friday showed continuing weakness in the labour market is certainly by now far from breaking news. I wouldn’t however want to let it pass by without comment. I think it is now abundantly clear that there is a pattern in all this somewhere (what that pattern is precisely, and what is causing it may be another matter). The US is not creating the quantity of new employment it needs. This means that the output gap (the gap between potential and actual output) is unlikely to reduce, and that the Fed will in all probability be unable to raise interest rates as vigourously as it had anticipated. This is also likely produce downward pressure on the dollar (with a consequent upward pressure on the Euro) and all sorts of other weird and wonderful things which should preoccupy those given to thinking about these matters. I think the debate is effectively over though: this is more than just a ‘soft spot’.
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