MAY’S JOBS DATA AGAIN INDICATED SUPPLY CONSTRAINTS

The growth in May’s nonfarm and private sector payrolls was again disappointing, the result of supply constraints.  Revisions in April data was insignificant hence supporting the view of a shortage of workers.

Wage growth was more than double than expected, average weekly hours are at a multiyear high and the labor participation rate (LPR) unexpectedly declined as workers did not reenter the labor force for as according to BLS statistics 55% of people that are collecting unemployment benefits are making more money not working rather than working.  In almost every dimension the data was disappointing and inflationary.

According to the National Federation of Independent Business (NFIB), small business owners reported a record number of unfilled positions in May.  Some 48% of firms had unfilled positions in May, a fourth consecutive record according to the NFIB.  A record 34% of small business owners are expected to raise compensation in the next three months to attract workers.

Perhaps even more disturbing, according to the NFIB “93% of business owners reported few or no qualified applications for positions they need to fill.”  In construction, 66% of respondents reported few or no qualified job seekers, up from the previous record of 58% the month before.

To write it differently, it is clearly evident government policy is impacting the labor market and such is creating an inflationary environment that has and will continue to lower productivity which will subsequently hurt margins for many companies.

The Fed is hypothesizing when enhanced unemployment benefits expire at the end of September there will be a surge of workers reentering the work force and wage inflation will decline.  Historically once wages are increased and productivity declines, such is not easily reversed.  It becomes embedded and must work itself through the proverbial system.

The Administration is proposing yet even more stimulus that based upon almost every economic textbook is inflationary.  Its budget is based on interest rates remaining around current levels through 2024 and will only rise nominally through 2031.

Is this realistic?  The May’s jobs data suggest no.

In the immediacy, the markets favorably interpreted the data for some pundits have stated the statistics will not force the Fed to taper earlier than expected, increases the odds of yet even more fiscal stimulus and lowers the odds of a premature increase in the overnight rate.

What will happen this week?

The economic data is comprised of a small business sentiment survey, JOLTS job openings, the CPI, a consumer sentiment survey and inventories.  How will this data influence perceptions, especially the JOLTS data?

Last night the foreign markets were up.  London was up 0.32%, Paris up 0.31% and Frankfurt up 0.16%.  China was up 0.21%,  Japan up 0.27%  and Hang Seng down 0.45%.

The Dow should open nominally lower on inflation concerns and the impact of a global minimum tax on technology firms.   The 10-year is off 7/32 to yield 1.58%.

 

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