The Federal Reserve is the weakest of the links in the US economy. Their timing is poor. They operate under two mandates and one works in direct opposition of the other.
Maintaining a stable money supply is one objective. Full employment is another. However, the Fed has a goal of 2% inflation and not 0% inflation, which is not stable, but inflationary. Additionally the Fed includes data in calculations that are not inflation based on monetary policy, but rising and falling prices due to greater or lesser demand.
That leads us to their second objective: full employment. When we get towards full employment, wages should rise and businesses compete for labor. But as soon as this were to happen, the Fed will stomp on the brakes. Continue reading
If you have been following my work for some time, you know that I have expressed belief that there is a strong correlation between Corporate Profit Growth and job growth in the United States.
My research had shown that there was a very high correlation between those two numbers. The higher the profit growth year over year, then the higher the job growth 4-5 quarters later.
Have a look at the following data. We have higher job growth with profit at lower levels? What is wrong with this picture?
Sep-10 -29.11% 0.09%
Sep-11 32.94% 1.66%
Sep-12 6.55% 1.48%
Sep-13 11.77% 1.79%
Sep-14 1.10% 2.04%
Sep-15 1.89% 2.05%
Profit Growth % from previous year
Job Growth % 4 quarters ending date shown
At the time I discovered this relationship, the correlation was .91 or so. This would imply that 81% of job growth was related to profit growth. And as I have written and suggested to anyone that would listen, if you wanted more job growth, you enabled more profit growth in the business sector. Using the same time frames as before, I watched the correlation fall from .81 to .57, suggesting that only 32% of job growth was now due to profit growth. Disappointing to me to be sure, but it was still a positive correlation Continue reading