June’s unemployment numbers were worse than May, the worst seen in 26 years, in fact, hitting 9.5 percent, suggesting that “those who have been calling for a Fed exit strategy from the extraordinary degree of monetary ease should be silenced by the June employment results,” writes Sherry Cooper executive president/global economic strategist at BMO Financial Group and chief economist at BMO Capital Markets and BMO Nesbitt Burns.

In a research note issued on July 2, Cooper contends that the U.S. economy remains far too weak for the Fed to be worried about inflation, and that the “larger-than-expected” payroll decline is only part of the story: even more telling is the jump in the U6, a broader measure of unemployment that includes part-timer seeking full-time work, and those who aren’t actively seeking jobs. The U6 rate of 16.5 percent in June was higher than the previous high of 15 percent experienced in 1982.

Cooper notes that the ranks of the long-term unemployed keep expanding, with a record 24.5-week average duration of unemployment “suggesting that most companies remain on the sidelines as far as hiring is concerned,” she says.
“Given the expected further contraction in the auto-employment sector, and only a modest revival in growth for the rest of this year, inflation fears are unfounded and the Fed will refrain from even hinting at monetary tightening,” writes Cooper. “The fact is, the U.S. money supply growth has slowed meaningfully in recent weeks and the Fed’s balance sheet has contracted. If anything, the Fed might inject more liquidity into the system in light of these continued poor job results.”

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