The only thing I’d say about Friday’s incredibly strong jobs report is that it makes far more sense that it was strong than that it would have been extremely weak. And anyone who is confused that it was strong is really confused in a much larger sense about what’s actually going on with this economy.  

The U.S. economy is and has been running too hot and not too cold. Think about it this way: Nominal GDP - Inflation = Real GDP. Inflation has been hitting 9% in recent months, which itself is evidence that we are running too hot, because if it were just a food/energy/supply chain/Ukraine story, high prices in those areas would, all else equal, create lower prices elsewhere. Instead, we have a massive rise in the entire, broad price level.  

Anyhow, point being, if inflation is 9%, think about just how high nominal GDP has to be running in order to keep real GDP positive. Very, very high, is the answer. Last year, for example, nominal GDP surged 10.1%. In the fourth quarter alone, it soared a massive, mind-boggling, 14.5% (annualized)! How on God’s green Earth is the U.S. economy exploding with that kind of “growth”? Because of the massive Fed and fiscal stimulus that poured into the pandemic-hit economy. 

The problem is, and here’s where those who say the economy is actually very weak are in some sense correct--this economy is nowhere near equipped to grow at a nominal 15% or 10% rate, or honestly even 5%, sustainably. In fact, potential GDP is so bad now, because of low population and productivity growth, that we probably can’t sustain nominal GDP much higher than 3% or 4% in the long run. So if we explode by 10% or 15% because of massive government stimulus, it all goes into higher prices instead of higher real economic activity. 

One “version” of this problem is manifested in the too-strong labor market. Yep--too strong. There are too many job openings, a problem compounded by too much “phantom demand” caused by all the stimulus, and also by the lack of normal immigrant workers for political and pandemic reasons. We never used to see half a million jobs added per month last cycle--literally, for like fifteen years after the financial crisis, the strongest we ever saw was a couple months in roughly the 400,000 range.