What’s the deal with jobs?
We ended the first trading week of 2022 with the December jobs report that was a little mixed. On the one hand, we only added about 199k new jobs, compared to expectations for closer to 422k new jobs. On the other hand, the unemployment rate fell to a new pandemic low of 3.9%, and within close reach of the 50-year low of 3.5% we were at just before the pandemic started. In good news for workers (but bad news for continued inflation), wages increased 0.6% in the month.
Moral of the story: There were about 4m more jobs available than there were unemployed workers through November. Combine that with this latest jobs report, worker shortages are really hampering employment growth, and this report doesn’t even capture the issues in the last few weeks driven by Omicron.
Supply chain issues 4 lyfe
The December reports on the state of our manufacturing and services industries both indicated continued growth. ISM’s manufacturing index came in at 58.7, down 2.4 points from November and the services index came in at 62, down 7.1 points from November’s record high. On the manufacturing side of the world, suppliers just aren’t able to keep up with the level of demand for their goods. And on the services side, businesses continue to struggle with inflation, capacity constraints, and shortages for labor.
Moral of the story: One of the bigger differences between the manufacturing and services sides of the economy in December – prices continued to increase for services sectors while manufacturers saw a meaningful decline in the rate of growth for prices. We’re seeing the early signs of improvements in labor resources and supply deliveries in the manufacturing sector, but it’s pretty obvious that we’re going to continue to feel the pressure of elevated prices for a while to come.
Throwing tantrums
In the context of high inflation and low unemployment, it’s less than ideal for the Federal Reserve to still be employing a really accommodative monetary policy (read: pumping lots of cheap money into the economy). Naturally, investors started getting concerned. Then the Fed told us that they were going to start going the other way with their policy, which helped investors feel a little better about the state of affairs. And then we saw the meeting minutes from the last Fed meeting, which made it seem like they were not only going to start going the other way, but they might be going from 0 to 60 in 7 seconds. And then the markets threw a bit of a tantrum, ending the first trading week down a little over 2%.
Moral of the story: There’s no doubt the Fed has a tough job and has been put through a situation in the last 2 years that was completely bizarre with no precedent to look back on. Literally everything I had learned as an investor, from a theory perspective, effectively got chucked out with all my travel plans. That being said, the concern is that policy is responding too late. We’ll see how this plays out but the Fed has a lot of catching up to do…