Friday, February 25, 2022

Changing Economic Influences from Ukraine to Football, and What They Mean

“Lord, it was an awful time, and then the war started” – Bill James

In some ways, what this modern American thinker wrote about the decade ending in 1919 fit yesterday.  But does it generally? 

The largest world news, of course, was Russia’s Ukraine invasion.  I won’t comment on that itself except that it was depressing, horrendously misguided, and possibly ultimately suicidal for both de facto Russian dictator Vladimir Putin and his country.  But we need to look at what it means to us domestically.

The clearest of several primers just out might be “Russia Is Sowing Conflict in Ukraine.  What Does That Mean for the U.S. Economy?,” by Jeanna Smialek and Ana Swanson, in the previous day’s New York Times.  Points these well-established authors made were that energy prices and those for “raw materials and finished goods” would head higher, “global unrest could spook American consumers, prompting them to cut back on spending and other economic activity,” there will be disruptions in food supplies caused by Russia and Ukraine combining for almost 30% of world wheat exports, we will have further supply chain shakiness, and may see “digital retaliation” from Moscow to American sanctions.  While gold and silver have gained only modestly, the Dow Jones Industrial Average, though up 92 points yesterday, is still over 3,500, or more than 10%, below its January all-time high.  Oil closed at $94.81 per barrel and may well see $120 within a month.  The war may also push unemployment up slightly, but without as much effect as our domestic situations.  All bad, but not affecting everything. 

Otherwise, while the pandemic both worldwide and in the United States has been fading quickly – per the New York Times, Wednesday’s 7-day average of new daily cases was down over 90% from its peak 40 days before – it is still roiling business shipments, with truck drivers often still required to quarantine just after crossing international borders, and, per the November 17th Guy Platten New York Times “The Supply-Chain Crisis Is a Labor Crisis,” doing the same for ship’s crews and even cargo plane pilots.  That sort of deleterious thing has improved, but isn’t over yet.

How else are Americans responding to these times?  Although an ancient practice, we saw that “Shifting Side Hustle Statistics Reveal New Trends About How We Earn” (Jeff Proctor, December 17th, DollarSprout.com).  This source’s “2021 Side Hustle Report” showed that of people with such earning propositions, the share putting in 15 hours per week on them shot up last year from 12% to 27%, over half of “side hustlers” had tried at least three different ones within 12 months, and the portion of those with these extra ventures using income from them “to cover necessary monthly bills and expenses” jumped in 2021 from 27% to 41%.  Almost one-seventh of participants earned more than $1,500 monthly last year, tripling since May 2020, with the largest draws being “enjoying the work” and “flexibility over schedule.”  Soon after Covid-19 became widespread, many started these activities when their regular jobs became endangered or went on hold, but the developments here go far beyond that.  Expect people to be increasingly willing to pay for convenience, as more have less time but extra money.

Something unambiguously a response to where we are now, though, is our response to remote meetings, specified in “After Two Years On Zoom, Workers Finally Learned How To Fool Their Bosses” (Jack Kelly, Forbes, February 6th).  Such techniques include participants “setting their laptop camera at an angle to make them look more domineering” (practiced by two-thirds of respondents), appearing “on an indoor exercise bike to appear disciplined, healthy and dynamic” (just short of one-quarter!), “wearing formal office attire on the upper body, while dressing casually below the waist” (82%), “thinking carefully about their onscreen backdrop and d├ęcor” (86%), and “regularly leaving Zoom calls to attend another work meeting that doesn’t actually exist” (56%).  The last, along with other ploys to overstate busyness and therefore production and value, is an old chestnut updated for the current environment, and the upper/lower clothing split has long been common in MBA photo shoots, but some are indeed newer, and, with these robust percentages, seem now to be the norm.  How will management respond?

When all else fails, we have something, as described in “Super Bowl wagers rise to records as online sports betting sweeps US” (Katherine Sayre, The Wall Street Journal, February 16th), long a distraction during as well as outside work time.  Fortified by law loosenings, especially New York state’s January legalizing of it on cell phones, it reached a probable all-time American peak for its largest single betting game.  Look for even more wagers, as fully legal American sites replace unlawful and gray-area propositions from the likes of offshore sportsbooks, and higher tax revenues if relatively few new jobs.  It will spawn social problems from people unable to handle it, but never before have there been so many messages giving telephone numbers for help lines and the like.  We will endure it, probably ending up like Great Britain and Ireland where it is both ubiquitous and largely ignored.  And we will survive everything else here as well.

Friday, February 18, 2022

Eight Days on Inflation: Statistics, Opinions, and the Best Possible Outcome

Ukraine, the Super Bowl, and the Winter Olympics have all been larger news stories, but the financial pages have focused on another topic.

In February 9th’s “Peak inflation and value stocks” in Fidelity Viewpoints, the investment company ventured that prices would increase more slowly due to “rising long-term bond yields“ (as that would “push up rates on mortgages and other loans”) “a stronger dollar” little changed since summer, and greater business inventories which have grown significantly lately. 

As it’s already over a week old, the results as “Rapid Inflation Stokes Unease From Wall Street to Washington” (Jeanna Smialek and Madeleine Ngo, The New York Times, February 10th) have already happened, and, before the Ukrainian situation did the same, caused a substantial Dow Jones Industrial Average drop, as “markets tumbled after the government released Consumer Price Index figures for January, which showed prices jumping 7.5 percent over the year and 0.6 percent over the past month, exceeding forecasts.”  Although some have suggested inflation is already leveling off, this is still the most recent CPI data, and that 0.6%, with compound interest, works out to close to the 7.5% annual rate.  The predictions, by “economists” that price increases would be “transitory,” were not so bad, but the transition is taking longer.

Fox Business, though unobjectively negative about many things Biden has affected, was completely right in saying that “Red-hot inflation gave most Americans a pay cut in January” (Megan Henney, February 11th).  It wasn’t a large loss, but it wasn’t the net gain many workers made in late 2021.  That outcome also hints at uncertainty at best, and lagging-pay problems possibly followed by more “labor shortages” at worst, this year.  The issue of pay-versus-inflation was also central to Peter Coy’s “High prices are not the only things that affect our buying power” (February 11th, The New York Times).  Coy mentioned that “if the Fed acts too aggressively, it could cause a recession and throw people out of work,” which would be “worse than paying more for stuff.”  He also, though, related that Fed chair Jerome Powell, who agreed with the previous, “has argued that keeping a lid on inflation prevents it from getting so high that extreme measures are required to stop it.”  Also that same day, we saw “Inflation May Have Already Peaked.  The Fed Needs to Step Gingerly” (Jeff Sommer, The New York Times), which may be shown true next month.

Once again, I disagree with a certain former Secretary of the Treasury, his views described in “Larry Summers has a new inflation warning” (Jeffry Bartash, MarketWatch, February 14th).  Also apart from all the commentators above, he thought it would get still worse, fueled by “an acute shortage of workers” and that a recent unemployment rate “is probably too high and understates just how few people are available for work.”  Monthly federal employment statistics have clearly shown that when jobs are obtainable and well-paying, people appear in the labor force and often accept them, and the American Job Shortage Number or AJSN, though much improved, still reveals that almost 18 million additional positions, over twice the number of officially unemployed, could be quickly filled.  We also learned Monday that “Federal Reserve officials call for a measured response to inflation” (Jeanna Smialek, The New York Times), namely various Federal Reserve Bank presidents, and, soon after, the opinion that “Inflation will ‘moderate’ as COVID fades:  Moody’s economist Mark Zandi” (Angelica Stabile, Fox Business, February 15th).

Zandi’s view here is a major reason why our current bout with higher prices is not the usual, and, indeed, may not respond to interest rate hikes, which won’t do anything constructive for supply-chain snags either.  I understand that, despite its being officially and generally apolitical, the Federal Reserve is under pressure to “do something” about inflation, so it will happen, but they should keep it as light as they think they could get away with.  One-quarter of a percent in early March would be enough of an increase.  That should be followed by the board paying close attention to pandemic outcomes and the specific transportation situation as well as unemployment.  If we get real progress on these first two issues, we may not need any more rate increases.  That would be the best outcome for America. 

Friday, February 11, 2022

News for the Economy: Interest Rate Increases, Why Has Inflation Got So High, World Economic Growth Problems, a Coming Boom, and Unemployment Claims

On American jobs, what can we expect for the rest of 2022?  Most of it we don’t know, but there are considerations that will help us. 

We start with the oldest article, on a subject with little more information since provided.  “Fed Eyes 3 Rate Increases in 2022; Slows Stimulus as Prices Rise,” by Jeanna Smialek in the December 15th New York Times, dealt with a then-new Federal Reserve announcement, that as well as cutting “monthly bond-buying,” they would hike interest rates.  Since then, all we have heard is that these boosts will start in March and continue for an unspecified time.  From the current 0% to 0.25%, “Fed officials” expected about 0.75% by the end of this year and 1.75% in December 2023.  The Dow Jones Industrial Average dropped several hundred points when the Fed non-specifically confirmed that last month, and may do more as the rate increases happen.  It is questionable whether higher borrowing charges will help at all, with the causes of inflation now supply chain problems and Covid-distorted demand, but it seems the Fed is under pressure to do something, and this is their usual and well-understood tool.

As for inflation itself, it probably was the best option.  As described in “President Biden’s Economy Is Failing The Big Mac Test” in the January 23rd New York Times, “the discomforting truth is that the United States last year faced a choice between a protracted period of economic pain and an economic recovery whose benefits are temporarily attenuated by high inflation.”  People hate paying more, but would they like shortages, which would be caused by trying to hold prices in place, any better?  It is a natural result, caused as it is supposed to be by too much money chasing too few goods and services, and when we get more of those, as we will when supply routes are smoothly functional again and demand settles down, it will be reduced.  That has nothing to do with interest rate levels.

When the two largest economies have problems, it makes the world look worse – that is the thesis of “Slowdowns in the U.S. and China will hold back global growth, a report says” (Patricia Cohen, January 25th, also in the Times).  The author mentioned the two factors in the previous paragraph, along with inflation itself, resulting in the International Monetary Fund’s cutting “its estimated global growth rate to 4.4 percent from the 4.9 percent it projected just three months ago.”  That may mean more than usual, as “the dimmed economic prospects come at a time when governments have less room to maneuver in how they spend their money,” caused mostly by pandemic-relief debt.

The good news came from Megan Cassella, in the January 26th barrons.com “Expect a Post-Omicron Boom as Americans Binge on Services.  Workers Are the Wildcard.”  When the current overwhelmingly predominant coronavirus variant fades nationally even more than it has over the past week in the greater New York City area, which will probably happen within the month, people, “many armed with either triple or quadruple vaccinations or heightened immunity due to infection,” will be ready to rush into activities and spend a lot of money doing them.  Per the title’s second sentence, though, there may not be enough workers to keep up with demand, unless they are paid more, which of course would be inflationary.  Prices on many services will rise, but as before customers will generally pay for them anyway and be glad they are truly available.  Unless our government tries to freeze prices…

The Department of Labor issues a weekly report on “unemployment insurance weekly claims,” the main number nationally reported.  This issue, released February 3rd, tells us that “seasonally adjusted initial claims” reached 238,000 in the previous entire week.  That is more or less an ordinary pre-pandemic result, above its 184,000 low several weeks before but vastly below almost anything in widespread Covid’s first year and a half.  The report also provided unadjusted figures and 4-week moving averages, which don’t vary much from the regular weeklies.

Add all of this up, and where are we going?  More inflation from multiple sources, as the supply-chain problem is hardly solved.  Higher but still low interest rates, for better or worse.  Massive numbers of employment opportunities, though not all paying market rates.  Ever more money, though still largely pooling up in a few spots.  Does all of this sound familiar?  It should.  It means the American jobs situation may not change for a while.

Friday, February 4, 2022

Odd and Choppy Jobs Report on December’s Data, with AJSN, Showing Higher Latent Demand, Up 1,500,000 to 17.8 Million

This morning’s Bureau of Labor Statistics Employment Situation Summary was expected to be “strange” – and it was. 

There was ostensible good news in several places, most believably with the 467,000 net new nonfarm payroll positions, almost double the only projection, 245,000, I saw.  From there, though, the data was distorted by the almost vertical Covid-case graph and battered by various year-end adjustments.  Reported were 4.0% seasonally adjusted unemployment instead of 3.9%, 4.4% unadjusted instead of 3.7%, 6.5 million unemployed replacing 6.3 million, 959,000 on temporary layoff instead of 812,000, 1.7 million out 27 weeks or longer replacing 2.0 million, and 3.7 million working part-time for economic reasons, or keeping that sort of position while so far unsuccessfully seeking full-time employment, instead of 3.9 million.  The two numbers showing how common it is for people to be working or officially jobless, the labor force participation rate and the employment-population ratio, now stand at 63.2% and 59.7%, compared with December’s 62.9% and 59.5%.  Average private nonfarm payroll earnings went up from $31.31 to $31.62, including a correction but still almost double the inflation rate. 

The American Job Shortage Number or AJSN, the metric showing how many new positions could be quickly filled if all knew they were easy to get, jumped 1,479,000 to the following:



Several of the factors changed substantially.  The State Department issued a new estimate of the number of American expatriates, which was 1.3 million higher than the most recent previous one I had, issued 4 ½ years ago by the Association of Americans Resident Overseas.  Although the 16th-of-the-month population estimate from the United States Census Bureau changed little from the previous, other differences in counting affected the number of non-civilian, institutionalized, and unaccounted, which came in at over one million less.  The largest gap between December and January, though, was from the number of officially unemployed, with those wanting to work but not looking for it for a year or more adding another quarter-million.  Accordingly, the share of the AJSN from unemployment increased 3.6%, and is now at 36.4%.   

Compared with January 2021, which was also higher than its previous month, the AJSN is down almost four million, 3.3 of that from official unemployment and enough to cover the rest from a lower number of those not looking for 12 months or longer.

As expected, the difference in pandemic statistics between mid-December and mid-January was gigantic.  Per The New York Times, the seven-day average of Covid cases, reflecting almost the very peak of the Omicron variant, shot up 555% from 122,368 to 801,903.  Deaths, using the same measure, were up 53% from 1,302 to 1,991, while pandemic-caused hospitalizations soared 127% from 68,222 to 154,698.  The 7-day average of vaccinations given, no doubt reflecting limits on the number of willing uninoculated Americans, fell 40% from 1,799,583 to 1,080,493.  The first three of these outcomes are almost guaranteed to be vastly improved next month.

What can we do with this dog’s breakfast of a jobs report?  Not much.  It’s great that we added so many positions, even with Omicron making a mess.  Beyond that, the numbers defy interpretation at best and are almost nonsensical at worst.  We will need to see February’s report, which should be directly comparable to this one, to judge where we are going.  The turtle picked up his foot, closed his eyes, and put it down somewhere, and forward, backward, or the same not even he knows.