Economics: Those of us who believe in r* also believe that while labor demand continues to expand robustly, policy is sufficiently restrictive that it will not remain so for long. But our strong belief that it is time for the Fed to cut—that when inflation is near-target interest rates should be near-neutral—is a bet on the applicability here and now of the neo-Wicksellian “r*” framework:

Nick Bunker: twitter.com/nick_bunkerLast year's relatively painless cooldown in the US labor market resulted from moderating but strong demand and rising labor supply. The December jobs report suggests the first trend looks set to continue in the year ahead. The continued bounce back in supply is less assured. Job gains are clearly slower than this time last year, with the three-month average gain falling to 165,000 last month from an average of 284,000 in December 2022. However, the current gains are still strong enough to keep the unemployment rate low given the slowing population.

A few sectors still account for the lion’s share of recent job gains, with more than 75% of December’s growth coming from Education & Health Services, Government, and Leisure & Hospitality…. Employers are still looking to hire, but they might be finding that the supply of easy workers isn’t as deep as it was recently.

The overall labor force participation rate dropped in December, as did the rate for so-called prime-age workers aged 25 to 54…. The prime-age participation rate stalled out this summer and has steadily declined since September.twitter.com/nick_bunker

Average hourly earnings as measured by the Bureau of Labor Statistics picked up last month, growing at a 4.3% three-month annualized rate…. Demand for workers remains robust.

The question raised by today's report is whether supply can start rising again… <twitter.com/nick_bunker…>