The Mirage of Employment Data: Why Federal Policy May Lead Us Toward Deflation

In the world of finance, the non-farm payroll data is a closely watched economic indicator. It provides information about the number of paid workers in the U.S. economy, excluding those in farming, private households, nonprofits, and the military. A stronger-than-expected rise often signals a robust economy, while a weaker rise—or a fall—can signal economic troubles. The latest non-farm payroll data has sparked much debate about the direction of our economy. However, an argument could be made that we should be cautious about using such indicators as a gauge for financial policy. A closer examination of these numbers, particularly in light of recent pandemic-related events, may suggest that the Federal Reserve's employment-focused financial policy could inadvertently cause a deflationary event.

The Post-Pandemic Employment Landscape

In the wake of the COVID-19 pandemic, the employment landscape has seen significant and often unanticipated shifts. Many workers were suddenly removed from the workforce due to deaths, retirements, and changes in work-life priorities. As a result, many jobs were permanently lost or transformed, causing fluctuations in the employment data.

The current employment data includes the many new jobs created in response to the pandemic, as well as the jobs lost due to businesses closing or downsizing. It does not account for the number of potential workers who have decided not to return to work or those who have retired earlier than expected due to the pandemic. Therefore, the data does not present an accurate picture of the workforce's capacity or the true state of the economy.

The Pitfall of Employment-Centric Financial Policy

Given the distortions in employment data due to the pandemic, tying Federal financial policy too closely to this metric could lead to missteps. The Fed has long used employment data to steer its monetary policy, adhering to the belief that lower unemployment leads to higher inflation due to increased spending.

However, in the current situation, despite rising employment numbers, we could be heading towards deflation, not inflation. Why? Simply put, a significant portion of our workforce has been permanently reduced, and many others have been displaced due to pandemic-related circumstances. With fewer people working and fewer people looking for work, overall spending power in the economy may decrease.

To compound the issue, there has been a rise in savings and cautious spending due to the uncertainty of the pandemic, causing further reduction in spending. Thus, if the Fed continues to adhere to the conventional wisdom of equating employment with inflation, they may overcorrect, leading to deflation.

The Risk of Deflation

While deflation may sound appealing (who doesn't like lower prices?), it can be disastrous for the economy. When prices consistently drop, people may delay purchases in the expectation of lower prices in the future. This creates a downward spiral, with reduced spending leading to reduced production, leading to layoffs, and even lower spending. Additionally, deflation can increase the real burden of debt, as the value of money increases, but the amount owed remains the same. This can lead to financial distress and further economic slowdown.

Rethinking the Approach

The lessons of the past two years should lead us to reconsider how we interpret and react to employment data. Our policymakers need to acknowledge the distortions in the data caused by the pandemic and adjust their approach accordingly. The Fed should consider a wider array of indicators, including measures of spending, savings, and economic uncertainty, before making significant policy decisions.

We are in uncharted territory. It is imperative that our financial institutions adapt to the new landscape, with its unique challenges and opportunities, rather than adhering blindly to traditional policy approaches. Only then can we hope to steer our economy away from the risk of deflation and towards a more stable and prosperous future.


This website is a wholly owned subsidiary of SCD Media, LLC, herein referred to as Smallcaps Daily. Our publications are a commercial advertisement and are for general information purposes ONLY. We are engaged in the business of marketing and advertising companies for monetary compensation. We may receive compensation for this article on a PPC basis as an affiliate. Never invest in any stock featured on our site or emails unless you can afford to lose your entire investment. The disclaimer is to be read and fully understood before using our services, joining our site or our email/blog list as well as any social networking platforms we may use. PLEASE NOTE WELL: Smallcaps Daily and its employees are not a Registered Investment Advisor, Broker Dealer or a member of any association for other research providers in any jurisdiction whatsoever.Release of Liability: Through use of this website viewing or using you agree to hold Smallcaps Daily, its operators owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Smallcaps Daily encourages readers and investors to supplement the information in these reports with independent research and other professional advice. All information on featured companies is provided by the companies profiled, or is available from public sources and Smallcaps Daily makes no representations, warranties or guarantees as to the accuracy or completeness of the disclosure by the profiled companies. None of the materials or advertisements herein constitute offers or solicitations to purchase or sell securities of the companies profiled herein and any decision to invest in any such company or other financial decisions should not be made based upon the information provided herein. Instead Smallcaps Daily strongly urges you conduct a complete and independent investigation of the respective companies and consideration of all pertinent risks. Readers are advised to review SEC periodic reports: Forms 10-Q, 10K, Form 8-K, insider reports, Forms 3, 4, 5 Schedule 13D. Smallcaps Daily is compliant with the Can Spam Act of 2003. Salesparq, LLC does not offer such advice or analysis, and Smallcaps Daily further urges you to consult your own independent tax, business, financial and investment advisors. Investing in micro-cap and growth securities is highly speculative and carries and extremely high degree of risk. It is possible that an investors investment may be lost or impaired due to the speculative nature of the companies profiled. The Private Securities Litigation Reform Act of 1995 provides investors a safe harbor in regard to forward-looking statements. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact may be forward looking statements. Forward looking statements are based on expectations, estimates, and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through use of words such as projects, foresee, expects, will, anticipates, estimates, believes, understands, or that by statements indicating certain actions & quote; may, could, or might occur. Understand there is no guarantee past performance will be indicative of future results.In preparing this publication, Smallcaps Daily, has relied upon information supplied by its customers, publicly available information and press releases which it believes to be reliable; however, such reliability cannot be guaranteed. Investors should not rely on the information contained in this website. Rather, investors should use the information contained in this website as a starting point for doing additional independent research on the featured companies. Smallcaps Daily has not been compensated for this article. The advertisements in this website are believed to be reliable, however, Smallcaps Daily and its owners, affiliates, subsidiaries, officers, directors, representatives and agents disclaim any liability as to the completeness or accuracy of the information contained in any advertisement and for any omissions of materials facts from such advertisement. Smallcaps Daily is not responsible for any claims made by the companies advertised herein, nor is Smallcaps Daily responsible for any other promotional firm, its program or its structure. Smallcaps Daily is not affiliated with any exchange, electronic quotation system, the Securities Exchange Commission or FINRA.
Show More

Related Articles

Trending Tickers

Back to top button