ICYMI: BLOOMBERG’S JOE WIESENTHAL HIGHLIGHTS EVIDENCE “JOB GROWTH IS BOOMING AND INFLATION IS MODERATING”
Yes, by this measure (and many others) we’re in the middle of another morning in America, despite the drag caused by a lingering pandemic and supply-chain disruptions.
So, about those disruptions: Can we talk for a moment about the Grinch that didn’t steal Christmas? There was a lot of skepticism a couple of months back, when major retailers said that despite supply issues, they expected to be able to meet consumer demand. But I’ve seen almost no reports of empty shelves and frustrated shoppers. And in this case absence of evidence really is evidence of absence, because you know that some media organizations would have loved to hype stories of holiday woe if they could find them.
So why are people still so downbeat? There continues to be a huge divergence between people’s negative views about “the economy” — a perception based in part on partisan attitudes, in part on media coverage — and their mostly favorable reporting on their own financial situation.
One thing is clear: 2021 was a banner year for economic recovery. And people should know that.
This is a dangerous statement, but there might be signs that job growth is booming and inflation is moderating, which of course would be the dream scenario for the economy.
Let’s start with some of the evidence that we’re seeing on jobs.
This morning we got the latest ADP data — a private survey of corporations — and it was well ahead of expectations. The number of jobs added came in at 807,000 versus the 410,000 that economists were expecting. It was also well ahead of November’s 505,000 reading.
Of course, ADP’s track record at forecasting the government’s non-farm payrolls report is just iffy. But other private-sector readings also appear strong.
In a note to clients yesterday, Ian Shepherdson of Pantheon Macro cited recent data from Homebase as evidence that the labor market was strong:
The latest Homebase data… suggest that December’s unadjusted payrolls will be reported rising by some 1,050K. If the seasonal factor is unchanged from December last year, that means the adjusted increase in private payrolls would be 1,230K. Our forecast, 1,000K, is lower because of the tendency in recent months for the initial print to be on the low side and then be revised up.
We also got a report from Paychex on Tuesday that was encouraging on the labor front:
Workers saw record hourly earnings growth and employment levels continued to rise as 2021 drew to a close. This is according to the aggregated payroll data of approximately 350,000 Paychex clients with fewer than 50 employees, released monthly in the Paychex | IHS Markit Small Business Employment Watch. The December data shows hourly earnings growth improved to 4.27 percent, the highest level since reporting began ten years ago. Hiring at small businesses also ended the year on a high note with the Small Business Jobs Index improving 7.31 percent from the prior year and 0.22 percent for the month.
Other surveys also point to robust labor markets. The employment sub-index from the ISM yesterday came in at 54.2, accelerating from November’s 53.3 reading and beating expectations of 53.6.
Meanwhile, official government data has been strong. As Skanda Amarnath of Employ America has pointed out on Twitter, we’re not seeing the typical seasonal rise in weekly jobless claims that we normally get at the end of the year. Once again, that’s highly encouraging.
On the inflation front, things are obviously harder to read and a bit dicier. For one thing, we’ve seen oil rebound sharply, so whatever dip we got at the end of last year in gasoline prices may not last.
However, if you read through some of the latest manufacturing reports, what companies are saying about their supply chains looks to be — at the margin anyway — a little better. The message seems to be that things are tight, but not worsening significantly.
Here’s a comparison of the anecdotal responses in the ISM in December versus November. On net, companies are still complaining about shortages and stress, but there are glimmers of hope expressed in December (highlighted). Whereas in the November report, the only thing that seemed to be getting better was various resins.
Is the difference dramatic? Not really. But the whole point is looking for signs of a change, and they may be showing up. Also, while oil gets the most attention, these surveys show manufacturers are citing more commodities that are falling. In December, there were eight commodities that were identified as falling in price. In November, it was four. In October, just one (wood).
Again, it’s not dramatic. Other measures, such as transport, remain highly strained. Data from DAT shows that trucking prices, for the most part, continued to rise going into the end of the year, for example.
The jury remains out, but there are at least some reasons to be encouraged by both the labor and supply chains/pricing data.
It’s also worth noting that this read is pretty consistent with the market action we’ve seen lately. Stocks are generally doing well, with the exception of growthy tech (which tends to do better when everything else is stagnant). We’ve also seen some modest re-steepening of the yield curve since late December, which may be indicative of a slightly brighter macro picture.