The BLS labor report is released at 8:30. Analysts are expecting a 213k and 170k increase in nonfarm and private sector payrolls, respectively, a 3.8% unemployment rate, a 0.3% increase in average hourly earnings, a 34.3 average hourly workweek and a 62.5% labor participation rate.
Unemployment is still around historical lows. The economy is strong, and inflation is trending down. Why is the electorate in a sour mood?
It is the unintended consequences of a boomflation economy where strong nominal growth is accompanied by high inflation, creating an environment where most feel they are falling behind, all compounded by an extremely toxic social media landscape where vitriol and animosity dominates.
A major component of inflation is inflationary expectations. As noted inflation has declined dramatically over the last 20 months from 9% to around 4%. However, the vast majority of people think prices have gone up. This is also an accurate view, for depending upon the index utilized, prices are 3% to 5% higher today than last year.
FRB Chair Powell also validated a long-held view that many inflationary indices understate inflation, specifically mentioning the CPI.
Even though accurate, any politician stating inflation is significantly lower risks losing credibility. The electorate knows…purchasing power has declined significantly from 4 years ago. Not acknowledging the obvious creates political pitfalls.
The WSJ reports that by more than 2 to1 (56% to 25%), respondents said the economy had gotten worse rather than better over the past two years.
Perhaps the only organization that has a lower trust or favorability rating lower than the media is Congress. However, politicians utilize the media/social media to spread mistruths, using vitriol to silence debate, thus a reinforcing and unending circle.
Many believe the country is fiscally walking into a proverbial buzz saw. Gallup stated that 40% of people aged 15-35 believe fiscal issues are the greatest issues facing the country, and the question arises do politicians attempt to cater to this demographic group by offering more handouts.
Increased fiscal spending is inflationary and adds to the unsustainability of the national debt.
Today’s unemployment data is perhaps a no-win proposition. If the data is stronger than anticipated, interest rates and inflationary expectations may increase, and the Administration will adamantly state things are good, risk losing more credibility. If the data is less than expected, it may further validate the ugly mood of the electorate.
All scenarios will be amplified by social media.
We are indeed living in a unique environment.
Perhaps the only winnable scenario is low unemployment, significantly higher wage gains that outpace inflation. The odds of this are extremely low as cost push (wage) inflation is now imbedded in the economy, the type of inflation historically produces even more inflation in a vicious feedback loop that requires difficult policy decisions to break.
Commenting on yesterday’s trading, tech shares initially led equities higher but came under pressure following the unrelenting advance in oil and hawkish Fed speak. Minneapolis Fed President Neel Kashkari stated rate cuts may not be needed this year if progress on inflation stalls, especially if the economy remains robust.
Treasuries were essentially unchanged for the day until Kashkari’s statement but ended higher on the day.
Last night the foreign markets were down. London was down 0.95%, Paris down 1.41% and Frankfurt down 1.42%. China was down 0.18%, Japan down 1.96% and Hang Seng down 0.01%.
Futures are up about 0.25% but prices could potentially radically change based on the 8:30 data. Oil is up another 0.25%, trading at last October levels. The 10-year is off 6/32 to yield 4.34%.
