The U.S. Economy Created 467,000 Jobs in January, the Unemployment Rate Ticked up 0.1% to 4.0%… The jobs number was higher than any estimate and well above the consensus estimate of 125,000 jobs.
What it means— Welcome to the January jobs report, where numbers don’t matter much. For evidence, look at the revisions, where the U.S. Bureau of Labor Statistics (BLS) revised the November and December numbers higher by 398,000 and 311,000, respectively. On the face of it, this looks like the economy exploded higher while no one was watching.
Reality is a bit more mundane. Every January, the BLS tinkers with its seasonal adjustments to the monthly reports and bringing the payroll data in line with tax filings. The corrections can create weird distortions. If we reverse the BLS revisions, January jobs would have been -137,000, well within the expected range of -400,000 to 125,000.
As for rising hourly earnings, which jumped 0.7% for the month and were up 5.7% for the year, those are a bit misleading, too. The omicron variant hit employment for frontline workers, who are among the lowest paid, harder than others. Removing more frontline workers from the calculation raised the average hourly earnings. Expect this to ease in the months ahead.
Job Openings and Labor Turnover Survey (JOLTS) Shows Continued Tight Labor Market… December marked the seventh consecutive month of more than 10 million job openings.
What it means— The JOLTS showed 4.3 million Americans quit their jobs in December, down from a record 4.5 million in November. Still, job openings remain near record levels at 10.9 million. As you might expect, companies are not laying off many workers. Firms dismissed just 1.2 million employees in December, or 0.8% of the labor force, a new record low. To put that in perspective, companies laid off 50% more workers in 2018 and 2019.
Continued strength in the labor market will force employers to do more to keep current workers, including better pay, scheduling, and benefits. Eventually, this will drive technical firms to revive something we lost in the merger mania of the 1980s, in-house training.
U.S. Debt Climbs to $30 trillion… The U.S. debt now stands at 120% of GDP, which closed out 2021 at $23.991 trillion.
What it means— Some people will point out that the U.S. government owes $6 trillion to itself because the Social Security Trust Fund and similar accounts hold that amount of U.S. debt. Technically, that money does not have to be spent, because the government can change the eligibility rules at any time. That seems highly unlikely, but fine, let’s stipulate that the amount of debt we must pay is a mere $24 trillion. That still puts our debt at 100% of GDP, a level we had not reached before except in times of war.
As anyone who has ever purchased an item on credit will appreciate, the level of debt is important, but the maintenance cost is what can kill you. Last year, the U.S. government paid $540 billion in interest on outstanding debt. Every 1% increase in interest rates pushes up our interest expense by about $100 billion. The more debt we incur, the higher that expense will rise. But since we’re nowhere near a balanced budget, we know how the government will react. Our elected officials will simply borrow more money to pay the higher expense.
Esther George, President of the Federal Reserve Bank of Kansas City, Reiterates the Fed’s Plan to Raise Rates and Sell Assets… In a speech to the Economic Club of Indiana, George noted that Fed policy has buoyed asset prices and unwinding it will be “complicated.”
What it means— People often forget one of the Fed’s most important policy tools, their words. Since Fed officials began issuing statements and discussing future policy in speeches, they have used their words to guide investor sentiment. In some cases, they have all but announced what will happen at future policy meetings.
George’s comments specifically called for the Fed to raise rates and then reduce its balance sheet, with a special emphasis on getting out of mortgage-backed bonds. Her nod to the fact that this will be “complicated” sounded like a nice way to say that it will be tough sledding for investors, who enjoyed an incredible tailwind as the Fed pumped $4.5 trillion into the financial markets between 2020 and 2021. Take President George and the other Fed officials at their word and prepare for a rocky road ahead.
Facebook Faceplanted While Google and Amazon Soared… Meta Platforms, formerly known as Facebook, lost more than $250 billion in value after disappointing earnings, while Alphabet, formerly known as Google, and Amazon, leapt by double digits.
What it means— Facebook surprised investors with lower daily user engagement and almost no user growth in addition to the expected drop in ad revenue due to Apple’s new privacy settings. The news sent Facebook shares sharply lower and wiped almost a quarter-trillion dollars of value off the company’s market cap.
Google shares soared after the company posted positive earnings, but the big news was that the search engine company will split 20-for-1 in July. Amazon shares also jumped after the company reported earnings, but again, it’s arguable that the reaction had little to do with profits. Amazon earned just over $14 billion in net income for the quarter, with $12 billion of that attributed to its Rivian investment. The remaining $2 billion profit wasn’t impressive, but the e-commerce giant also reported that it is raising its prime membership fee from $119 to $139. The extra cash will drop directly to the bottom line.
Lebanese Man Robs Bank to Withdraw His Own Money… Bekaa Valley coffee shop owner Abdallah Assaii had a problem. He had tens of thousands of dollars in the bank, but the bank refused to honor his checks to suppliers. The bank limited withdrawals to small amounts, only in Lebanese pounds, and
at an exchange rate 65% lower than the market rate. Assaii decided to take a drastic step to get his own money out of the bank. He took several bank employees hostage at the local branch, doused them and himself in fuel, and threatened to start a fire. The employees handed over $50,000 in cash during the ordeal, marking it as a withdrawal from his account. Eventually
Assaii apologized to the bank staff and surrendered to police, but in the confusion during the surrender, he handed the cash to his wife, who is now on the run. It’s not clear that Assaii can be prosecuted for robbing the bank of his own funds. There are no laws in Lebanon that allow banks to limit withdrawals in this way, but he is still on the hook for his treatment of the bank employees.
Data supplied by HS Dent Research
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