Last name inflation, first name holy

Stuck in a rut 

New unemployment claims barely fell last week and seem to be stuck above the 400k level. This is the second week in a row that unemployment claims have not trended lower as we would hope, and could indicate potential stress in the labor market continuing despite the economy reopening. 

Moral of the story: Job openings are at record levels as employers are desperately looking for more workers, but I don’t anticipate the unemployment picture will change meaningfully until the fall, when kids start going back to school and the elevated federal unemployment benefits run out. At this point, just feels like a broken record…

Can’t stop the beat 

Inflation coming in hot for May as the Fed’s preferred inflation measure, the core PCE index, which excludes food and energy, increased 3.4% on an annual basis, which is the biggest increase the index has posted since 1992. Including food and energy, the index rose 3.9%. Incomes fell for the month as pandemic relief started to burn off and consumers dipped into their savings to fund their spending, which stayed pretty flat compared to April. Consumption is above pre-COVID levels now and growing at a solid clip to keep the economy chugging along. 

Moral of the story: The market was expecting this as stocks didn’t really react much to the inflation print on Friday morning. The Fed continues to believe these inflation numbers are temporary in nature and will subside, but they are also acknowledging the marked improvement in the economy. Based on their meeting last week, seems like less accommodative policy is going to be on the table sooner than expected a few months ago. 

Making moves in DC 

A bipartisan group of Senators have been working on putting together a version of the infrastructure bill that both parties could support. Seems like they found a middle ground this week and were able to put together a proposal that was amenable for Biden as well. They still need to figure out how to pay for this, but the bill includes $579b in new spending for transportation (roads, bridges, rail), electric vehicle infrastructure, power, broadband, and water.

Moral of the story: Neither party really got all of what they wanted out of this bill (funny how compromise works) and I’m sure enough people are going to throw a fit about it. Hopefully they can get enough support to pass this bipartisan plan, especially from the far left who still want billions in spending for expanded social programs and climate change as part of this plan (hopefully climate change will soon be addressed through a separate effort). Regardless, it seems like spending is coming, and should result in a nice little boost to the associated industries and jobs. 

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