Jobs report shows the economy is overheated.
The Bureau of Labor Statistics just released the jobs numbers for January 2022. To the surprise of most economists, 467,000 jobs were added. That’s much better than the 199,000 jobs added in December 2021. While that is good news, in general, it could spell trouble in the near future.
6.9% GDP Growth Unsustainable
Most economists are expecting economic growth to slow in the current quarter. In the last quarter of 2021, the economy grew at a rapid 6.9% annual rate. Since the country is now producing about 2% more goods and services than was being produced prior to the pandemic, a 6.9% growth rate is not sustainable.
Most economists are forecasting GDP growth to be in the 4% range this year. That is a number that can easily be reached, as long as most of the 2.5 million workers who were employed prior to the pandemic, come back to work. If they don’t, the excess demand will cause prices to rise even more than they did last year.
This is especially true since the Federal Reserve has said they will not raise interest rates until March, at the earliest. By then the monthly Consumer Price Index numbers will show that the annual inflation rate is 8% or more.
At the end of April, the estimate for GDP growth in the first quarter will likely show an annual growth rate in the 6% range. High growth and even higher inflation, clearly show an overheated economy. As noted in the past, the Fed will have to get very aggressive with interest rate increases.
That means a 0.50% interest rate increase in March or April, followed by four or five more increases before the end of the year. Next year at this time, interest rates will be 1.5 to 2 percentage points higher than they are now.
Biden Completely Off on Inflation
Based on his press conferences and speeches, President Biden doesn’t seem to understand the severity of the inflation problem. He also doesn’t seem to understand the impact of inflation on American consumers, nor does he propose any reasonable solutions to solve the inflation problem.