Moneybeat: July jobs report and inflation

MARY REICHARD, HOST: Next up on The World and Everything in It--the Monday Moneybeat.

MYRNA BROWN, HOST: Time now for our weekly conversation on business, markets, and the economy with financial analyst and adviser David Bahnsen, head of the wealth management firm The Bahnsen Group. Good morning!

DAVID BAHNSEN, GUEST: Well, good morning. Good to be with you.

REICHARD: Well, David, let’s begin with the July jobs report: It showed 528-thousand new jobs added and the unemployment rate hitting a 50-year low— 3.5 percent. And according to The Wall Street Journal, with those jobs added, that means the economy has completely recouped the 22 million jobs lost due to the economic shutdown related to the pandemic.

But, and here’s where my question comes in, the same report says that even though all the jobs lost since February 2020 are recovered, there are still more than 600,000 fewer people in the workforce than there were then. This is the “labor force participation rate” I hear you talk about so often.

It has to be good that the jobs are back, but how concerning is it that so many have dropped out of the workforce?

BAHNSEN: Well, it's extremely concerning. And I also would point out that the absolute number of jobs that had been lost since the pandemic had been recovered, meaning the payrolls are now back to where they were February 2020. But that actually doesn't tell the whole story because the populations higher and and you have what's called a trend line growth. And the payrolls are not where they would be on trend, we would expect to be at a higher level just based on a normal trend of job growth that is in concert with population growth. So it's still a little bit lower than it was. However, it's been remarkably quick in terms of a comeback from that violence of job loss that we experienced. But your question on labor participation for us is the operable question, because as I love talking about to these listeners, it is a cultural question 16 to 24 year old, so the primary demographic impacted meaning having left the workforce, the 55 + demographic concerns me a lot as well, but for different reasons, 16 to 24. Those are people losing muscle memory of working, losing training, losing development, losing social skills, and pressures and deadlines. And that has an exponential impact because you develop things when you're 22 years old, that you're going to be using for decades to come and we're inhibiting that future productivity.

BROWN: Would you say the jobs report was the biggest story of the week? You mentioned cultural factors. Was there something else, maybe a close second, that we ought to know about?

BAHNSEN: Well, I do think that it was the job report Friday, that was the biggest story. But I also think that this so-called Machin-Schumer Bill and the kind of developments going on there are quite interesting on the policy front, Senator Sinema of Arizona chimed in. And while the headline was she's now on board, she took out the two worst parts that were left in it from a growth standpoint. So that bill already was really quite a cosmetic joke in terms of what its real impact would be. And now, her having taken out the carried interest tax issue and essentially brought back the ability for full expensing for manufacturers on this corporate minimum tax, that whole deal has become quite a joke. And now it could even get worse for the Democrats from there because the parliamentarian and the Senate could very well this week rule that some of the drug benefits they want to put in are not appropriate for the budget reconciliation process. So I think that would be a second place story, but most certainly, the job story is front and center because it is continuing and it's something I've talked about many times on this podcast. It is creating a very inconvenient narrative. There's slowing economic data that is diluting the benefit of strong jobs. And there's strong jobs diluting the narrative of us being in recession and these two things continue to play tug of war.

BROWN: I’d like to take a moment to say we will try most weeks to have listener-questions for David. We’d like to handle these the same way we do listener-feedback: that is, we will prefer questions you record in your own voice. So record your question and send us the file at editor-at-W-N-G-dot-org. So please get your questions in and we may use them on future Monday Moneybeats with David Bahnsen. So here’s our first one, and I’ll read it to you, David:

“As part of inflation woes, insurance companies are dramatically raising rates. They claim that because materials cost so much more these days, the cost to replace a house, or make major repairs, has increased substantially. … What kind of widespread economic effect might this kind of ‘hidden’ cost have?”

What light can you shed on that, David?

BAHNSEN: Well, the rising insurance premium that goes with a rising cost of goods is actually a pretty small piece of the overall puzzle. It's the rising goods themselves, that is far more impactful, the insurance companies are not lying. The cost of replacement, which is part of the economics, to how they would go about ensuring the home is what their own replacement cost would be, the replacement cost has gone higher. So the premiums being increased is probably not as big of a factor as just merely the prices themselves. The question will be if it's sticky, because those building costs are coming down, lumber prices have dropped dramatically, copper prices have dropped. And so will insurance premiums stay higher, even when cost of goods does decrease. That's the question. I think that's in front of us. I wouldn't say it's a major economic impact, but it's certainly--like a lot of these things on the margin--has an impact.

REICHARD: Before we go, I understand that you’ll be offering an Economics 101 online course, David. With Nick on vacation, I was a tad concerned about coming up with what to ask you about. I’m a lawyer, not an econ specialist, so I wish I’d had the chance to take your class. But today, your course is online, and I’ll note there’s no disclosure we need to make, because the course is free of charge! Maybe I should ask, given you’ve written a book titled, “There’s No Free Lunch,” how can there be a free economics course?! [haha] But seriously, tell about the course, why you’re doing it, and where listeners can find it. I imagine homeschoolers will especially appreciate it!

BAHNSEN: Well, I certainly hope homeschoolers would and I hope other Christian classical schools and just different one offs, I expect an awful lot of adults will end up wanting to take the class as well. But of course, the point of there's no free lunch is not to say that somebody can't get something for free, it's that somebody else had to pay for it. And so I assure you that this course was not free for me, but it is something I cared about deeply and felt that distributing this content, at no cost to the person hearing it was more beneficial to the cause I care about then the revenues that it would generate. So essentially there are 30 lectures that have all been professionally recorded, and all of the quizzes and exams, and essay prompts and a full syllabus with links to all the reading material and video material is all available and incubated at bahnsen.com. And so we're really excited and hopeful that a foundational understanding of economics completely and explicitly rooted in a Christian worldview will have the impact I believe it needs to have.

BROWN: All right, that’s David Bahnsen. He’s a financial analyst and advisor and head of the wealth management firm The Bahnsen Group. David writes at Dividend-Cafe-dot-com. And, as you heard, his free Economics 101 course you’ll find at Bahnsen.com.

David, thanks again.

BAHNSEN: Thank you for having me.

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