The U.S. Economy Created 194,000 Jobs in September, Widely Missing the Estimate of 500,000…The unemployment rate fell from 5.1% to 4.8%, as fewer people participated in the labor force.
What it means— Not much. Local government jobs (read here: school district employment) fell by more than 140,000, which dragged down the overall number, and we’re still dealing with a seasonality issue. With hundreds of thousands of people typically moving in and out of jobs due to summer employment and seasonal hiring for retail, the government smooths out the jobs figures by developing seasonal adjustments, but how accurate can they be during the pandemic? Jobless claims fell to the lowest level since the pandemic started, and there are help wanted signs everywhere. The labor market is tight, and wages are marching higher. This is just another force pushing up inflation, which will nudge the Fed to taper.
Congress Agrees to Raise Debt Ceiling by $480 Billion…The move will fund the government through early December.
What it means— Republican senators appear to be having a good time. They know the Democrats can raise or suspend the debt ceiling through a budget reconciliation act, but the Democrats don’t want to have to act alone on a process that likely would include many potentially embarrassing amendments that they’d have to vote down. The Democrats want the Republicans either to join them in a vote or at least allow them to hold an up/down, simple majority vote on the topic, because it would fund spending that’s already been approved. Senate Minority Leader Mitch McConnell relented, sort of, by allowing a simple vote to increase the debt limit just enough to get through November. We could be playing this game all over again right around Thanksgiving.
Investors around the world don’t like this. While no one doubts America’s ability to pay, if we choose to default, it will roil markets because of missed interest payments and debt repayments that can’t be used to make good on other payments. It would be a mess. Thanks, Congress.
Congress Pushes Back Vote on the $3.5 Trillion Build Back Better Plan and Infrastructure Bill… Speaker of the House Pelosi had promised a vote on Biden’s spending plan and the infrastructure bill but put off the votes when she could not get a majority on the infrastructure bill without a corresponding Senate majority on the spending plan.
What it means— Senators Manchin (D-WV) and Sinema (D-AZ) are holding the line against the Build Back Better Plan because they say it is too expensive. Progressives in the House are refusing to vote for the bipartisan infrastructure bill, which already passed the Senate. With the artificial deadline of September 27 behind us, some people are talking about a compromise. But don’t think that means the cost of the Build Back Better Plan will fall. Instead, House Democrats are discussing ways to shorten benefit windows, like calling for the expanded child tax credit to last three years instead of five to trim the costs even though everyone knows that once an entitlement is in place, it’s almost impossible to end.
A Record Number of Container Ships Wait to Unload at L.A. and Long Beach Ports… More than 50 container ships are waiting to unload. That’s better than the recent 70 at anchor. The normal number of ships waiting at a given time before the pandemic was between zero and one.
What it means— Every part of the supply chain for imported goods has suffered some sort of issue over the past 18 months. Factories couldn’t operate because of COVID-19 and truckers and dock workers missed work because of outbreaks. Meanwhile, orders increased 20% in a system with no extra capacity. As Americans ordered more stuff, shipping companies raced back to Asia for the next round without loading empty containers for the return trip. This left exporters in Asia short of shipping containers, which drove up the shipping costs.
Some of these issues, such as getting factories back online, will work themselves out. Others, like building more capacity into the dock and domestic transport system, need to be addressed. American ports don’t run 24 hours a day like those in other nations, and so far, we don’t have the manpower required to operate on that schedule. To clear our supply chain, we need to add people, which costs money. The word we’re looking for here is inflation.
The Fed has lost the battle of “transitory” inflation… After a decade of working to achieve 2% inflation, the Fed is faced with 5%.
What it means— The Fed has created its own problem “painting itself into a corner.” If it raises rates, it slows the economy risking a recession, a market collapse and undermining an already difficult labor market.
Given that Mr. Powell is nearing the end of his current term, the Fed is not likely to change anything before his re-appointment. Any action by the Fed with negative market consequences will complicate Democrat economic objectives increasing the Senate’s desire for his replacement.
Further, there are two issues in the economy that the Fed cannot resolve:
- Food inflation resulting from weather and supply chain disruptions. Whether labor is lacking at the seaports, rail hubs or truckers hauling to distribution centers or retail outlets, the Fed has no power to resolve the issue. Consumers are demanding product which isn’t on the shelves. When product is available, higher prices are being accepted.
- Politicians and the Environmental, Social and Governance community have created an energy crisis that will last for years. Politicians, activists, and major investment bankers have demanded moving from fossil fuels to “green energy” without first providing for adequate capacity in the replacement energy sources.
Energy suppliers can’t meet the demand. Coal and oil companies have the same labor shortages as local retail businesses. With mandated closures, the oil industry terminated 100,000 workers of which only one-third have returned.
Rising gasoline and heating fuel prices are creating frustration, if not anger, among consumers. The Administration asked OPEC+ to increase production to reduce prices. The request was ignored.
The next solution is to release 60-million barrels of oil from the strategic reserves. Literally, that is a drop-in-the-bucket as US consumers use 20-million barrels of oil daily. There is no master plan to fill the energy void for decades. This would not be a problem if wind and solar were already functioning replacements instead of early experiments.
Federal Reserve Governor Lael Brainard Says Central Bank Needs to Give Banks Direction on Climate Change… In a video conference, Brainard said that the Fed should direct banks on monitoring and managing the economic risk of climate change.
What it means— The central bankers are expanding the scope of their job to include anything that might pose an economic risk. Unfortunately, the list is long. There’s no doubt that a changing climate can affect the economy, but so can changing politics. Will the Fed demand that banks develop control measures that balance which party is in power? Will the Fed demand that banks assess and react to changing educational requirements, which affect the readiness of the labor force? It’s hard to close Pandora’s box. The Fed’s views of what risks should be assessed and how they should be addressed once identified, are likely to reflect the politics of the governors.
Red Squirrel Stores 42 Gallons of Black Walnuts in Pickup Truck… Bill Fischer of Fargo, North Dakota, returned from a four-day business trip to find the fenders, wheel wells, and engine compartment of his truck jammed full of black walnuts. An industrious red squirrel had spent the days gathering the nuts and storing them for the winter. Fischer had to remove the fenders of the vehicle to get some of the nuts out. He took out enough walnuts to fill seven six-gallon buckets and still had some rolling around that he could not reach. And it’s not the first time. Squirrels have been using his truck for storage every two years since 2013, which is the maturity cycle of the tree. Fischer has tried to park his truck far away from the tree, but it doesn’t help. The animals don’t appear to store their winter stash in any other vehicle nearby.
Data supplied by HS Dent Research
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