Good Monday AM,
Markets feel clam-ish today.
The 10-yr has backed up to 3.49% but should hold here (and improve). Mortgage bonds and most equities are flat. No data today but we do have some important reports this week. Wednesday being the biggest draw of the week, and I am expecting rates to improve as a result. The Labor Department releases the consumer-price index for April. Economists forecast a 5% year-over-year increase, matching the March data. Core CPI, which excludes volatile food and energy prices, is expected to rise 5.5%, down 0.1 percentage point from March.
Thursday, The Labor Department reports initial jobless claims for the week ending on May 6. Claims totaled 242,000 in the prior week. The Labor Department releases the producer-price index for April. Economists expect a 0.3% month-over-month increase, compared with a decline of 0.5% in March. Core PPI, which excludes volatile food and energy prices, is forecast to increase 0.2% month over month, from a 0.1% decline in the previous month. Friday, the University of Michigan releases its preliminary consumer-sentiment index for May. Economists forecast a 63 reading, down from a 63.5 reading in April.
Tomorrow is also a bi-partisan meeting at the White House to discuss the debt ceiling. I don’t expect any movement from the talks but keeping fingers crossed. It becomes painful and then disastrous if the government runs out of money to pay its bills.
Bloomberg shared a good piece on inflation… it’s worth a few minutes.
I think the point is that we may indeed be able to have strong employment and recessing inflation. The employment picture looks very different today for several reasons. The two reasons that scream loudest to me are: 1) Working remotely has brought many more people to the workforce. Those unable to work before, stay at home parents, etc. 2) with that, the demographics of employment have changed.
The main thing people talk about with this economy is inflation. Why is it so high? When will it come down to target? What kind of policy errors lead to it getting so high? Was it that the Fed was slow to hike rates? Was it the extra checks from Biden? Is it that “transitory” is a really long time? Are expectations embedded? Is it the result of high wages? Is it the result of corporate greed? Why hasn’t it slowed down more, even as supply chains have eased? Would the Fed accept a period of 3% inflation, instead of 2%? How does US inflation compare to inflation elsewhere in the world? What’s the best measure of inflation?
These are all legitimate questions. But there’s more going on than just high inflation. On Friday we got the latest Non-Farm Payrolls report, and it’s at its lowest level in 70 years. Low unemployment is a good thing. And mostly people agree, but also mostly people talk about the labor market in the context of the Fed’s efforts to get inflation down. The labor market is described in terms that are neutral at best. “Tight” is a common way to describe it, even though that’s an inherently employer-side perspective to take. Labor might be tight or scarce, but the flipside is that jobs are abundant.
But even beyond the framing, this labor market is more than just tight. It’s good. It’s high quality. Skanda Amarnath at Employ America put together a great thread after the report, highlighting some numbers and trends that aren’t getting as much attention.
Among the notable facts. The Full-Time Prime Age (25-54) employment-to-population ratio just hit its highest level in over 2-decades. This is important. People try to throw cold water on the news by saying things like it’s all part-time jobs, or something to do with demographics, or whatever. But this is not the case. Full-time employment is rocketing past the pre-crisis highs.
The fruits of the strong labor market are spreading out across demographics. Black unemployment is at its lowest level in history, while prime-age employment-to-population for the group hits its highest level since the late 90s.
Meanwhile, the Labor Force Participation Rate for prime-aged women has also hit its highest level ever. To the extent that we regard employment as a good thing for society, it’s worth taking stock of what’s been achieved in this recovery. It’s not just that the labor market is tight or that the unemployment rate is low. Under the hood, there are numerous measures that have sailed past pre-crisis levels. And to the extent that certain policy decisions may have contributed to higher inflation, it’s worth spending time on what’s been achieved on the labor side. And what we stand to lose, potentially, in a recession.
Please remain safe and stay healthy, make today great!