Job openings provided the Fed with ‘a perfect report': Economics professor

University of Chicago Economics Professor Austan Goolsbee sits down with Yahoo Finance Live to talk about the latest round of economic data from the May JOLTS report, the state of the job market amid the Fed's interest rate hikes, and inflationary pricing impacting consumers.

Video transcript

JARED BLIKRE: Welcome back. Focus on the Fed, as always. Federal Reserve officials showing concern in their last meeting that interest rates need to rise faster because of the inflation outlook. And joining us now, Austan Goolsbee, professor of economics at the University of Chicago Booth School of Business. Austan, always great to see you here. I know the FOMC is kind of taking center stage here. And we'll get to that in a second.

I want to ask you about the JOLTS report because that's where we saw some huge bursts of, I guess, interest rates going higher off of it. And just some of the figures here for the folks at home, US job openings fell 427,000 to 11.25 million in May. But that was greater than the consensus estimate of 11 million. What's your take on the job market right now, Austan?

AUSTAN GOOLSBEE: Well, I mean, it's obviously been a very strong job market, and surprisingly so, given how low the unemployment rate already is, how we could be putting up these multi 100,000 new jobs created each month. The JOLTS report showed a substantial drop in the number of job openings.

And in a way, that's the perfect report. That's what the Fed is looking for soft landing, that they could reduce the job vacancies without generating a recession or driving up the unemployment rate. So you never want to make too much out of any one month's number. But if they got several months like that, I think they'd be feeling pretty good.

RACHELLE AKUFFO: So you're basically saying the Fed should be feeling pretty good about the minutes and what they said, being that unemployment is one of the factors that they look at in making these decisions. Did anything really stand out to you, any sort of nuances that came out from the minutes that really give us some idea of the health of the economy, at least through that lens of the Fed?

AUSTAN GOOLSBEE: Yeah, you know, the thing is-- so there's the JOLTS numbers, which I think were very positive. The minutes themselves, I think, show that the Fed is a little scared. And that's partly why they were raising rates as fast as they are, kind of the fastest raises in recent memory. And there's definitely a danger.

And they're perfectly aware of the danger that if a lot of the inflation we have seen is coming from supply shocks, and if the supply shocks don't get relief, that using their only one instrument, which is to cool demand for interest rate sensitive parts of the economy, that that one instrument might not be the correct medicine, that you got a screwdriver and what you need is a hammer.

So you can see them nervous that they might raise rates too fast and start a recession. And that's the tough balancing act the Fed has got, made tougher by the fact that this business cycle looks nothing like a normal business cycle. A bunch of the cyclically sensitive sectors went up during the downturn.

And we've got this lingering service sector rebound, which has never happened before. We've never had a recession that was driven by the service sector. So how much pent-up demand there is for haircuts and vacations and restaurants and things like that will matter a lot to the Fed. And it's not something that you can go back and look at the historical record to get any sense of it.

JARED BLIKRE: Austan, at your Chicago Booth School, there's something called the Initiative on Global Markets. And it is a-- I guess, they go to various economists around the world, and they try to get their opinions on various things. They posed a question which I thought was really interesting. It would serve the US economy well to make it unlawful for companies with revenues over $1 billion to offer goods or services for sale at a, quote, "unconscionability excessive price during an exceptional market shock." In other words, are price controls good or bad? And you responded, how are we back at this again?

AUSTAN GOOLSBEE: Yeah, look, price controls are terrible. Price controls don't work in a normal market environment. Maybe for some non-market goods or where the government is most of the demand or where there's big monopoly powers, there can be some limited role for price controls. But I found somewhat exasperating the discussions about price controls when we have a historical record of what happens when you try to put in wage and price controls. And it doesn't end well.

RACHELLE AKUFFO: I want to ask you about the consumer. Obviously, we've seen the consumer trends shifting significantly throughout the year. And according to the Michigan Consumer Sentiment Index, the people that they surveyed said 2022 is the worst economy ever. And this is including data going back to the 1950s. Consumers are not spending as if this is the worst economy ever. Why are we still seeing this dichotomy? And if that persists, what does that actually do to the economy?

AUSTAN GOOLSBEE: Yeah, you've horned in right on the thing that nobody can understand about this Michigan consumer confidence data. One, people are saying, what do you think about the economy? They say the worst they've ever seen. But in surveys where they ask them how about your personal situation, people say, oh, yeah, it's pretty good, actually. My wages are up. I got a job. My finances are doing well.

So we've never had a bigger difference of opinion between your personal situation and how the economy is doing. And we've never had this big of a divergence between what people say is their confidence and what they're actually spending. The whole reason that we've paid attention to consumer confidence in the past is that it's been kind of an indicator, an early indicator of what would happen in consumer spending. But it hasn't at all.

So we've now been, for almost a year, seeing this very negative viewpoint of the economy. And yet, consumer spending didn't go down. It went up. So I think it's still a puzzle. It's caused a lot of people to question the usefulness of that survey as an economic indicator.

JARED BLIKRE: And we got time for-- we got about a minute left here. I want to ask you about the tariffs in China that were enacted about four years ago. Biden administration has considered-- considering rolling them off. And I'm just wondering what your thoughts on this are. Is it a drop in the bucket? Could it make a difference?

AUSTAN GOOLSBEE: Depends how many they roll off. Overall, like most economists, I think tariffs are terrible. And I think the tariffs of four years ago were the biggest tax increase on the middle class, probably in the history of the United States. So the more tariffs you got rid of, the more prices would come down. And you would see it, just like you saw it on the way up. But if you do it only on a very limited number of items, then, obviously, the overall impact on price would be modest.

RACHELLE AKUFFO: Well, great getting your insights today. Austan Goolsbee there, professor of economics at the University of Chicago Booth School of Business. Thank you.