Certain schools of thought – among them the so-called ‘Market Monetarists’, as well as George Selgin’s Fractional Free Bankers – believe – in line with the thinking of the later Hayek – that the Fed would be better off effecting policy with regard to the maintenance of a steady rate of growth of nominal GDP.
Consciously or otherwise, we would argue that this is largely what it has done, over the years, and that this insight helps us tie together developments in the PMI, in business income streams, and in the Fed funds rate.
It is certainly the case that the recently reported NFP numbers were poor. Compared to a mean/median of 193k a month in private job additions over this past six years or so, June’s paltry total – of 65k after we add back the 40k Verizon strikers – was 1.9 standard deviations away from what we have become used to.
Indeed, taking the raw, 25k increment, this was the worst showing since early 2010, capping off a three-month run which has been the worst since 2012. If we compare instead aggregate hours scaled for population, it can be argued that the figure has been edging into a zone which has been typical of past recessions – though, with frequent short-lived spikes in the record, this indicator needs the confirmation of subsequent bad months ahead. Continue reading …