Hot, hot, hot

Today’s jobs report shows another big employment gain and rapidly rising nominal wages. Here’s Bloomberg quoting Seema Shah:

To have 263,000 jobs added even after policy rates have been raised by some 350 basis points is no joke. The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates. It will not have gone unnoticed by Fed officials that average hourly earnings have steadily strengthened over the past three months, exceeding all expectations, and the absolute wrong direction to what they are hoping for. 

And here they quote Peter Tchir:

The big news is earnings! Last month was up 0.5% instead of original 0.4% and this month was up a whopping 0.6% (versus 0.3% expected). Fed will not like that.

bUt hiGH iNtERst rATes MeAn mOnEY is tIGht

Seriously, this is why we need level targeting.



36 Responses to “Hot, hot, hot”

  1. Gravatar of Michael Rulle Michael Rulle
    2. December 2022 at 09:45

    Powell seems to agree with the two guys quoted by Bloomberg. At least his comments on interest rates suggest it. So, from his perspective one could imagine him going on a hike binge.

    Each day I know less. I never would have thought that higher pay, more jobs and higher earnings would be considered something to fear. Money of course is not tight. Inflation will stay high or high-ish. Inflation has never been a positive feature historically —-so does that mean all these good macro numbers are bad?

    Maybe it does mean higher inflation —-a mean reversion leading to lower pay jobs and lower earnings.

    One thing I know is I don’t know.

  2. Gravatar of dtoh dtoh
    2. December 2022 at 14:53

    I keep saying look at the LFPR…not the jobs number or the unemployment number. From that perspective, the U.S. is still way below the long term trend line. Maybe the reason we have inflation is not because the economy is overheated, but rather because it’s undergoing a systemic adjustment which is resulting in significant gains in real hourly earnings for workers in low wage jobs.

    Maybe the Fed should not be trying to fix inflation. Good monetary policy also includes being able to recognize when there is a systemic supply and demand imbalances.

  3. Gravatar of TF TF
    2. December 2022 at 15:06

    You couldn’t be more right about NGDP level targeting. If 2021 2022 monetary policy mistakes can’t convince academia and policy makers of this what will? Do you know what Goolsbee thinks? I’m still in the soft landing camp for now.

  4. Gravatar of ssumner ssumner
    2. December 2022 at 15:21

    dtoh, No, the economy is certainly way overheated, it’s not even debatable, and the LFPR means nothing due to boomer retirements.

    TF, I don’t know his views, but I suspect they are mainstream. At this point, I’d be happy with something between a soft and hard landing.

  5. Gravatar of Majid Hosseini Majid Hosseini
    2. December 2022 at 15:39

    Dr Sumner,

    Assuming the current framework that the Fed has (so no NGDP targeting, at least officially), and the current tools that the Fed has available (no NGDP futures market), I’d love to know what’s your recommendation for the Fed. I bet there are Fed staff and officials that read your writings regularly and your thoughts will have an impact on their decisions. My impression of Powell’s comments is that they don’t trust any models they’ve used in the past and are just trying to cautiously navigate the waters.


  6. Gravatar of dtoh dtoh
    2. December 2022 at 16:22


    “the LFPR means nothing due to boomer retirements.”

    You know that’s not true, even adjusting for retirements and other demographic factors, the LFPR is way below what is was pre-Covid.

    “the economy is certainly way overheated”

    What are the numbers on which you are basing that assertion?

  7. Gravatar of msgkings msgkings
    2. December 2022 at 16:32

    It’s understandable why the general public can have problems with the experts/academics/insiders when they get so upset by rising real wages and strong employment.

    I get it, inflation has to be dealt with. But still, the optics are not great.

  8. Gravatar of Rajat Rajat
    2. December 2022 at 16:44

    I just posted this on the previous post:

    Scott, any reaction to the recent fall in the Atlanta GDPNow estimate of 4th quarter (real) growth? From 4.1% to 2.8%.

    I ask because you’ve previously referred to their estimate. Do you think those estimates are just less relevant than these wage data?

  9. Gravatar of Garrett Garrett
    2. December 2022 at 17:21

    Michael said: “Each day I know less. I never would have thought that higher pay, more jobs and higher earnings would be considered something to fear.”

    The only thing that prepared me for this was that a decade ago it was the opposite. When money was too tight, the markets rallied on jobs misses because it would spur the Fed to be less tight. Bad news was good news. Today, good news is bad news.

  10. Gravatar of Ricardo Ricardo
    2. December 2022 at 21:26

    You have to raise interest rates above inflation; they just don’t want to do it because leftist, communist, losers in Washington are worried about public perception towards massive social programs (which of course enrich them).

    They don’t want to ask questions about why American bonds have been downgraded, because the debt payments are one trillon a year, or why they cannot service the payments as previously agreed.

    The credit card always comes due Sumner. You can’t manage apples, so don’t try to manage my money. Have the courage to admit that you are a punk with no idea what you’re doing, that your entire lifes work is psuedoscience, and that everyone will laugh at you for the next 1000 years because you’re a modern day alchemist and astrologist.

    That’s why you and Scwhab are so desparate to centralize, because you know the debt is impossible to pay. The funny money credit system and ponzi scheme will come crashing down, and they want to prepare people, inculcate them to the idea of living on less under the pretext of sustainability (hint: windmill farms are not sustainable), because you want them to live on less as the credit dries up and the bill comes due.

    I’m going to take a giant poop right on top of your gravestone in the middle of the night, then wipe my butt and smear the feces on it. That’s what you deserve. You’re a tyrant.

  11. Gravatar of ssumner ssumner
    2. December 2022 at 22:38

    Majid, I don’t like to give advice on interest rates, as I don’t know where the natural rate is. That’s not my comparative advantage. But I lean toward the view that slightly tighter money is appropriate. I’d add that I don’t believe I could do a good job as Fed chair if this is the monetary regime. It’s too hard.

    dtoh, Nope:

    I focus on NGDP, but every other variable shows the same overheating: inflation, nominal wages, worker shortages, etc., etc.

    msgkings, You said:

    “get so upset by rising real wages and strong employment.

    No one should ever get upset by rising real wages.

    Rajat, Yes, that slightly lowers my estimate of NGDP growth in Q4.

  12. Gravatar of dtoh dtoh
    2. December 2022 at 23:33

    Even though you are cherry picking to make the numbers look better, the graph you cite still shows that LFPR is down by 0.5 percent. If you add back in the groups you’ve excluded (e.g. 20 to 24 where LFPR is down 2.5%) the overall LFPR rates is still down by over a point even when you take out the retirees.

    Citing inflation, nominal wages and worker shortages sheds no light on whether inflation is being driven by general overheating or by a systemic change in the labor market.
    With RGDP growth averaging under 0.4% annually for the year, I would not characterize the assertion that the economy “is certainly way overheated” as “not even debatable.” I would be more inclined to characterize that assertion as highly debatable.

  13. Gravatar of dtoh dtoh
    2. December 2022 at 23:58

    One more thing. If you look at changes in wages by income level in the Atlanta Fed data, the rate of increase is substantially higher for the lowest quartile (65% higher than in the top quartile.) Lower income wages tend to be more volatile, but the current differential is atypically large, which to me suggests there are some systemic shifts occurring in the labor market that may be driving inflation. That and a) the 2.6% drop in the LFPR for the 20 to 24 age group, and b) a 13% wage rate increase for 16 to 24 years old makes me wonder if we are not dealing with something a little different than what’s happened in the past.

  14. Gravatar of Spencer Spencer
    3. December 2022 at 07:48

    Dis-savings can only go on so long. 1st qtr. of 2023 should start a recession.

  15. Gravatar of Spencer Spencer
    3. December 2022 at 08:17

    The bond market is forecasting a recession:

    But the demands on the Treasury are increasing, interest on debt, foreign participation, COLAs, etc.

    Debt to gDp ratios are misleading:,Domestic%20Product%2C%201%20Decimal%20%28GDP%29%3A%20GFDEGDQ188S%20%3D%20%28%28GFDEBTN%2F1000%29%2FGDP%29%2A100

    To appraise the effect of the Federal budget deficit on interest rates, it is necessary to compare the deficit, not to a debt to N-gDp-ratio (a contrived figure), but to the volume of current net private savings made available to the credit markets. Unprecedented large deficits “absorb” a disproportionately large share of N-gDp (as gov’t spending is a component / factor of N-gDp).

    Both high interest rates and high taxes induce stagflation, thus eroding the tax base and increasing the volume of future deficits.

    And it’s obvious that the burden of higher interest rates will be compounded. The burden becomes a function of the major portion of the debt, not just the current deficits. The burden, in fact, becomes exponential. In other words, if the trend is not stopped, the debt inevitably has to be repudiated.

    Leland Pritchard 1951: “the charges on debt are related to a cumulative figure; and since the multiplier effects of debt expansion on income, the ingredient from which the charges must inevitably be paid, is a non-cumulative figure, it would seem that the time will inevitably arrive when further debt expansion is no longer a practical or possible expedient, either to provide full employment or to keep debt charges with tolerable limits”

    That is why you’ll get 1 CBDC for 100 dollars. And the underground economy will be destroyed.

  16. Gravatar of David S David S
    3. December 2022 at 15:43

    Not to contradict my prior dumb predictions–in fact to make them more consistent–but 2023 could feature the strangest recession we’ve ever had. It could feature any combination of the following: unemployment ticking up to 4%, NGDP growth rate descending to 6%, PCE at 5%, and….a rebound in housing construction by summertime WITHOUT a commensurate increase in prices (except in New England where our zoning regulations are psychotic.)

    Oh, I’m in the same boat as Michael Rulle.

  17. Gravatar of Jon Jon
    3. December 2022 at 15:44

    Scott writes:

    dtoh, No, the economy is certainly way overheated, it’s not even debatable, and the LFPR means nothing due to boomer retirements.

    Retirements + the opioid crisis.

  18. Gravatar of ssumner ssumner
    3. December 2022 at 18:26

    dtoh, RGDP is meaningless for the overheating question, NGDP is all that matters.

    As far as relative wage changes, they are just that—relative, not absolute.

    That 0.5% drop could be anything, including long covid and a drop in immigration (which affects employment more than total population.)

  19. Gravatar of dtoh dtoh
    3. December 2022 at 20:19


    “RGDP is meaningless for the overheating question, NGDP is all that matters.”

    Quite to the contrary, it’s the only thing that matters. Your argument is basically that inflation exists and therefore we know its cause.

    Supply and demand imbalances are not nominal!

    The drop could not be anything. Look at the studies. None of the explanations you keep floating have a significant correlation. And…. it’s not 0.5% unless you cherry pick the data.

  20. Gravatar of Sara Sara
    4. December 2022 at 02:09

    That’s not correct.
    The household survey shows a decline in jobs; in fact, there are less people employed now than in 2020. You’re cherry picking data, but I’m not suprised because that’s what utilitarians do. They seek to use anything as a means to their end; in your case, it’s crushing the value of the dollar to empower the CCP and destroy individualism and democracy and replace it with mechanized order, run by a group of so-called experts.

  21. Gravatar of Sara Sara
    4. December 2022 at 02:27

    Not to mention, savings is falling. Investment is falling.
    There is an inverted yield curve, massive debt on the books, all signs point to a recession. We are not overheating. We are in a period of stagflation, or will be shortly.

    All because of people like you!

    Thank you for that. I will be transfering my dollars to a safe haven before you destroy the economy. Perhaps singapore.

  22. Gravatar of Michael Sandifer Michael Sandifer
    4. December 2022 at 05:59


    The economy can be overheated right now, and the prime age LFPR could recover in the near future. Obviously, the RGDP potential fluctuates.

    That said, I don’t think arguments about higher long-run RGDP potential need to rest on an increasing LFPR. The assumption that productivity growth will remain low is among the most questionable claims that Scott makes. It’s a prediction, not without reason, but like most macro predictions, it has a good chance of being wrong.

  23. Gravatar of Michael Sandifer Michael Sandifer
    4. December 2022 at 06:08

    Generally, I’ll take a long-term bet on AI increasing productivity growth in the US over extrapolation of trends of recent decades.

    And Scott’s analysis concerning the causes of higher stock price appreciation than trend NGDP growth rates should allow don’t fit the data. The mean NGDP growth rate and the mean S&P 500 earnings yield have been very close to equal for many decades. There’s only a 0.2% difference since 1962, for example. That really calls into question the citing of “pricing power” for example as a factor in higher stock price valuations. Why haven’t we seen a divergence in mean GDP growth rates versus the earnings yield if factors other than expected NGDP growth are important?

  24. Gravatar of postkey postkey
    4. December 2022 at 11:38

    “ . . . was actually another policy decision by
    16:23 the central banks the central banks did an operation that’s not very well known they forced the banks to increase Bank
    16:29 Credit in the real economy by purchasing assets from the non-bank sector which
    16:35 boosts and creates out of nothing new bank deposits which were then used largely for consumption where also of
    16:41 course government policy helped and accelerated this so the inflation in the 70s and our inflation since late 2021 is
    16:48 due to conscious policies taken by Central planners at the central banks . . . “ ?

  25. Gravatar of Uh oh! Uh oh!
    4. December 2022 at 12:00

    DTOH said:

    “which is resulting in significant gains in real hourly earnings for workers in low wage jobs.”

    Dude! 🙂 No for long! 🙂

    Even without considering inflation, as the layoffs among high-paid tech workers pile up, their lost spending is going to drop a sledge hammer on the low wage sector. The only reason the bomb hasn’t exploded yet is that retailers are hiring to make sure they get excess inventory out the door this year. And it’s not really going that well. Cyber Monday spending was a record nominally at +5.2%, and spending is variously reported up a few percent – both vs. YOY inflation of 7.7%

    That means people are spending more and getting less. I sell on eBay and FedEx shipping rates are **WAY** lower than this time last year, despite rising costs: that means their volume is way down, and they’re cutting rates to fill the trucks and planes that are already scheduled.
    That’s also consistent with what we already know on other fronts: companies are offering deep discounts. So you can see profits are going to take a pounding in the Jan-Feb earnings season.

    So in the new year, you can look forward to the low wage job demand dropping through the floor, profits doping the same, and those two things resulting in a pull back of corporate tech spending and a continuing decline in headcounts at tech companies.

    You heard it here!

  26. Gravatar of dtoh dtoh
    4. December 2022 at 15:57


    Scott may be correct. The current inflation may be a result of generalized overheating caused by bad monetary policy. On the other hand, it might be a transitory phenomenon resulting from and needed for adjusting to systemic changes in the labor market. (I find his his unwillingness to consider alternative data and theories a little strange.)

    Regarding productivity and real growth, four things.

    1. I’ve spent a lot of time in both technology and manufacturing. IME, most productivity growth comes from investing in bigger and faster machines….not from revolutionary new technology.

    2. The rate of investment (and thus the rate of real per capita growth) is purely a function of expected after tax returns

    3. The tax rate on capital was increased by 60% at the beginning of the Obama presidency.

    4. When returns on capital are asymmetric, even small changes in the tax rate are hugely amplified in the expected after-tax return.

  27. Gravatar of Michael Sandifer Michael Sandifer
    4. December 2022 at 20:43


    I think the current high inflation is due to a combination of looser Fed policy and supply-side problems. Hence, part of the remaining problem should indeed be transitory, understanding that transitory refers to a time frame in the 1-to-3 year range, roughly. Inflation expectations 5+ years out are not so high, though are still above 2%.

    On productivity growth and capital investment, the biggest productivity booms seem to have been associated with technological revolution, even if decades of investment toward dissemination were required. Think electrification, the rise of the internet in the 90s, etc. AI will be more important than those revolutions, though we’re still in the very early stages. AI is not yet impressive to the informed, despite considerable relative progress in recent years. The potential gains of automating automation should not be underestimated.

    Of course, it will help quite a bit if the Fed and tax policies don’t choke capital investment.

  28. Gravatar of dtoh dtoh
    4. December 2022 at 22:29

    Pretty much agree with you on inflation, but I think it’s really hard to know just how much is policy and how much is inflation. That said, if I were the Fed, I’d be tempted to arr of the side of not sacrificing too much real growth.

    Might be saying the same thing on productivity. IME, technology plays a big role, but it’s very incremental…. a thousand steps and a million missteps to get from point A to point B.

    BTW – rising wages for low skilled jobs really helps the process. When I was involved in manufacturing, we had a list of investments and we implemented the projects that cleared an IRR hurdle rate. A lot of the projects involved replacing labor with capital. When wages for lower end manufacturing jobs go up, it pushes a lot of potential investments way over the IRR hurdle rate.

  29. Gravatar of Michael Sandifer Michael Sandifer
    4. December 2022 at 23:30


    Yes, that’s a good point. I’ve long thought the costs of never getting to full-employment were higher than commonly recognized.

    The reality is, most economists don’t seem to take the SRAS/AD model literally.

  30. Gravatar of Doug M Doug M
    5. December 2022 at 13:04

    Interest rates are absurdly low. The real rate is negative. Maybe higher than a year ago, but still low.

  31. Gravatar of Edward Edward
    6. December 2022 at 08:27

    A bit off topic, but I was reminded of Sumner today when his good pal, the war mongerer and war criminal, Bolton, said he’d be running for the presidency in 2024.

    That will be absolutely comical. I hope he likes polling below 1%, because everyone hates him.

    Talk about delusion. Some of these folks really think they are special; they think people actually like them. If you took a poll tomorrow of American citizens who believe Bolton is trustworthy or a liar, 99% would vote he’s a liar. If you took a poll on whether he should be rotting in solitary confinement for killing innocent civilians, you’d find that about 75% or greater vote in favor of locking that nasty person up. The left hates him, and the right hates him. His only friends are Sumner, and other warhawks within quasi government agencies dependent on tax subsidies to boost their profit margins (i.e, those who like war to acquire their ends) and crazed lunatics who want to see the world be annihilated by a low iq imbecile. Unlike Trump, this is a guy who would actually go to war with Russia, North Korea, Iran, China, etc, etc.

    Btw, does anyone remember when Sumner told us that the Hunter Biden laptop (parroting the NYT) was a conspiracy theory? I do.

    Turns out he was wrong….yet again. And the NY Post was right…yet again. It seems America’s oldest newspaper has also become one of its most reliable.

  32. Gravatar of ssumner ssumner
    7. December 2022 at 12:37

    dtoh, You said:

    “Quite to the contrary, it’s the only thing that matters.”

    I thought it was pretty obvious that I meant all that matters for ascertaining the stance of monetary policy. Obviously, RGDP matters for living standards. You act as if it’s hard to figure out whether inflation is caused by excess demand or lack of supply. It’s not hard; nothing could be easier. Just look at NGDP growth.

    I don’t even know why we are debating this. Have we learned nothing in the past decade? We need slow and steady NGDP growth. NGDP growth is currently way too fast. Period. End of story.

    Edward, LOL, you think I like Bolton? I’m a dove.

    “Btw, does anyone remember when Sumner told us that the Hunter Biden laptop (parroting the NYT) was a conspiracy theory? I do.”

    I don’t.

  33. Gravatar of dtoh dtoh
    7. December 2022 at 21:22

    So you are saying if for example because of an external shock, food and energy prices permanently doubled or if the labor force fell by 20% because of a pandemic, that policy makers should not adjust the NGDP level target?

  34. Gravatar of dtoh dtoh
    7. December 2022 at 21:34

    If memory serves, I’m pretty sure that as you stated you never said or implied that the laptop story was a conspiracy theory.

    BTW – I think you should have a rule about people going off topic in the comments. It’s like the comment section of Twitter or the NYT.

  35. Gravatar of msgkings msgkings
    7. December 2022 at 21:36


    That George/sarah poster seems to be taking a breather at least

  36. Gravatar of ssumner ssumner
    9. December 2022 at 09:56

    dtoh, Sure, you can target NGDP per capita, or per member of the labor force, but that has zero bearing on the current situation. We still have excess NGDP growth by any criterion.

    The Russia/Trump trolls here are probably AI. They don’t even read my blog. Over 90% of what they claim I believe I don’t actually believe, it’s not just the laptop issue, which I have zero interest in.

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