09 Jun ANOTHER RECORD FOR JOLT
Is the current increase in inflation “transitory?” The answer will greatly impact markets.
Yesterday’s data continued to suggest an economy is in the nascent stages of inflationary growth. Further statistics from the NFIB (National Federation of Independent Business) stated 40% of owners indicated they are rising selling prices in May, the highest in monthly data back to 1986 and up from 36% in April. Furthermore, a record 43% said they plan to boost prices in the next three months, an increase from 36% a month earlier.
And then there is labor. According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), job openings rose in April to a fresh record high of 9.3 million far surpassing the previous month record of 8.3 million. Vacancies were broad based.
Moreover, a record 4 million people voluntarily quit their job in April.
The number of vacancies exceeded hires by 3.2 million, also the most on record according to the Labor Department.
The Labor Department stated “enhanced unemployment benefits have reduced the labor pool which is creating shortages and rising wages.” The Labor Department further stated a “structural change may be occurring in the markets given that wages gains are difficult to reverse.”
The economy is experiencing both cost push (wage) and demand pull (product) inflation. The last time such was present was in the 1970s. In many regards the similarities are uncanny to that era with perhaps social policy as the most prevailing. LBJ commenced the “Great Society Programs” which most will state was a major catalyst for the inflation of that time.
As widely noted, the current Administration is the most progressive in at least three generations.
Tomorrow the CPI is released. Consensus is expecting a 0.4% overall increase and 0.5% gain ex food and energy. Year over year consumer prices are expected to rise 4.7%. How will this data be interpreted?
The five-year, five year forward breakeven rate—a key bond market indicator that measures bond trader’s projection for average annual consumer price increases for the five years beginning in 2026—rose to a eight year high of 2.55% in May. It has declined nominally to around 2.46%. The Fed actively targets this rate and if this yield again rises, the prevailing Fed narrative that inflation is transitory will be challenged.
Commenting about yesterday’s market activity oil closed over $70/barrel for the first time since October 2018. Equites were quiet and the 10-year up 13/32.
Late in the day former FRB Vice Chair Donald Kohn voiced his concern that “the US central bank is not well positioned to deal with a rising threat of faster inflation and such is very worrisome…the framework is not designed to deal with the upside risks to inflation.”
Last night the foreign markets were down. London was down 0.54%, Paris down 0.04% and Frankfurt down 0.54%. China was up 0.32%, Japan down 0.35% and Hang Seng down 0.13%.
The Dow should open little changed. Oil is up another 0.5% to almost $71/barrel. The 10-year is up 9/32 to yield 1.51%.