The Friday jobs report just came in and it recorded a major downward miss. The U.S. economy lost 92,000 jobs in February and unemployment ticked up. It’s always important to remember that these reports are fairly noisy on a monthly basis and, especially recently, they’ve been subject to major revisions. Having said that, a lot of politics and economics commentary for the last month or two has been based on other single-month reports which are ripe for narratives but don’t necessarily tell us a lot. The political calculus is perhaps clearer than the economics one. The White House needs a good macro-economic trend to come into focus pretty quickly. Because from an electoral standpoint you need several months of favorable or at least “moving in the right” direction numbers in order for those shifts to show up in public attitudes.
What seems clearer is the situation in the Gulf. The Journal just reported that Kuwait has become cutting oil production at some of its oil fields. I mentioned earlier this week that oil gets produced in a metaphorical pipeline (in addition to the literal ones). If empty ships can’t be loaded with oil and the product can’t be shipped out, it starts to back up at the ports. And there’s not a lot of room to store it. Pretty soon there’s nowhere to put the oil. So you have to start reducing the supply coming into the ports from the oil fields. And that’s not as easy as just turning a faucet on and off. There are time lags turning down and turning back up. If the situation in the Strait of Hormuz clarifies quickly or becomes obviously safer, these supply chain kinks can probably be smoothed out pretty quickly. But that seems highly uncertain, and supplies are also backing up in Saudi and the United Arab Emirates.
We don’t need to envision some major breakdown in the global supply of oil or a major price shock, though neither of those is crazy to imagine at this point. The relevant point is that even moderate upward pressures on the price of oil and natural gas put upwards pressures on inflation, in the U.S. and globally. And that’s bad political news for the White House since it has a really intense need for those prices to go down.
You have to make the point that a lot of commentators are making: quite apart from the security and international relations questions, starting a very hot war in the Middle East when your big focus is affordability and inflation is a very strange move to make. And I still strongly suspect that Donald Trump launched into this with very little awareness of how these different parts of his presidency could collide, and with very little planning from his staff about how to grapple with these very predictable challenges. A bad jobs report, which could well be short-term noise, simply adds to the electoral, if not necessarily the economic, challenges.
