Bad decisions follow from bad analogies

In “Wall Street Has Decided It’s Time For The Fed To Raise Interest Rates” we read:

US workers are quitting their jobs like crazy.

On Thursday, the latest JOLTS report from the BLS showed that the quit rate for US workers rose to 2% in September, with total job quits rising to 2.8 million, a six-year high.

And the read-through on quits is this: workers will quit their job if they are more confident they can find another one.

In a note following that announcement, Chris Rupkey, chief financial economist at MUFG, wrote that the Fed’s statement implied it had “capitulated” and became willing to admit that there is real strength in the economy and the labor market, despite inflation that remains below the Fed’s 2% target.

And in an email following Thursday’s JOLTS report, Rupkey reiterated this stance, writing:

“Fed Chair Yellen has famously pointed to the Quits Rate also in these Jolts data. If you feel secure enough to quit your job then the economy must be pretty good. Well, the Quits Rate jumped in September to 2.8 million people from 2.5 million in August. The number of Quitters out there in the economy, you know who you are, is just the same now as it was back in 2004 when the Fed started normalizing interest rates.” 

The point is that in 2004 the Fed started to “normalize” interest rates because NGDP was back on trend. It certainly doesn´t look like that now, even assuming a lower trend level. Also note that quits and hires started moving up when NGDP began to rise in mid-2009. In short, there´s a lot of “Quits & Hires” to take place before we get close to anything that could be called “normal”.

Quits & Hires

HT Travis V


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