Waging the Hiring War
Will low unemployment come to mean high inflation?
What all this means is this: Firms may choose to deal with more rapid cost pressures by passing them into the prices that consumers pay for everything from laptops to doctors' visits. That would place upward pressure on core inflation, which has been above the maximum 2 percent level that Fed Chairman Ben Bernanke would prefer to see. On the positive side for the Fed, labor costs rose at just a 0.6 percent annual rate in the first quarter.
But beyond the pesky inflation issue is what many economics pros call "the employment conundrum." The nation's economy has slowed dramatically over the past year, mostly because of the housing downturn. Yet the unemployment rate has also dropped, as the economy has added some 2 million net new jobs.
So which is right, the weak growth numbers or the strong jobs numbers? Janet Yellen, president of the San Francisco Fed, took a stab at an explanation in a recent speech. Government statistics show the economy is generating income faster than the numbers on gross domestic product would indicate. If the income numbers are on the mark, Yellen said, "this would mean that both labor and product markets have been tight." And that would make the Fed less likely to cut interest rates soon.
But that's the big picture, the view from 50,000 feet. All small-businessman Weimar knows is that the last time he made a job offer, "I couldn't even get the guy to call me back."
advertisement
