Today’s unemployment report showed that nonfarm payroll growth beat estimates. Nice. The headline number always turns heads. I remember trading unemployment and you’d get a pop one way or another. Depending on the internal data in the number and the prior positioning of everyone in the market, you’d get follow through on the pop or you’d get a reversal. Reversals were always the most fun to trade.
If you read my Wordpress blog over the years, you know that I like to look at all the numbers, not just the headline numbers. The BLS sends out U-3 and everyone responds. But, U-6 shows everyone in the workforce. The other key metric I like to look at is the wage metrics.
All this good news in unemployment is just the economy emerging from forced shutdowns. Nothing more. It’s not anything the current administration did. As a matter of fact, if they did less and spent less, it would get better faster.
When you look at this report, there is confirmation that labor has pricing power. Year over year, wages were up 5.7%. That’s a big hike. Labor is the most expensive input to production. It’s one reason we have high inflation.
Given the rate of inflation, a good unemployment rate, there is no doubt the Fed will stay on course to raise interest rates in March. The only question is will they be gentle with .25 or more aggressive with .50. Fed Funds at CME Group are telling you that it is .25 right now.
The one fly in the ointment is the continued heavy restrictions for Covid in some of our most populous states. Our country is being kept as an economic hostage by California, New York, New Jersey, Illinois, and interestingly the teeny state of Nevada.
Why Nevada? Because the entire economy revolves around services and entertainment. Mask and Covid mandates are causing people to balk. Sure, a lot of people are still going to Las Vegas. But, that’s not what really matters. What matters is the marginal number of tourists that would come but aren’t. The economy is missing out on a lot of revenue.
The other problem with tough Covid restrictions on vaccines, masks and other things is the uncertainty. How many people aren’t working in those states because they don’t want to wear a mask all day? How many people aren’t working in those states because the Teacher’s Union is intermittently shutting down schools and enforcing draconian policies on children who don’t need them? It is time to end the Covid panic porn.
Of course, I was for ending it at the outset. Based on the data, I was right. Yesterday, a Johns Hopkins economic study showed that lockdowns only stopped .2% of all Covid deaths. The opportunity costs of lockdowns were far greater. As Mises says in the linked study, “All such acts by governments should be condemned as repugnant acts of runaway regimes.”
My guess is quite a few people are still staying home in draconian Covid states and it shows up in the U-6 number. That number dropped from 7.3% to 7.1% in the last month. We also see it in the labor force participation rate stay lower than normal at just over 61%. Pre-Covid, it was above 63%. 2% sounds small but in this case, to statisticians and economists, it’s a big number. I’d love to see those numbers in states with draconian Covid policy versus states that are open like Florida and Texas. It would give policymakers insight, not that the ones in the draconian states want any.
I think the next hurdle for tackling unemployment is getting the states that stubbornly refuse to look at the science and data to become “free” states again. Supply chains can’t repair themselves fully until they do. That means more inflation and pain. As I have been saying on Stocktwits, STFR.
The Johns Hopkins study is damning, or should be. The number of deaths caused by the lockdowns, including deferred health care and deaths of despair, will be harder to determine, but my guess is they will dwarf the lives lost to illness caused by Covid, especially if measured by excess deaths rather than people who had Covid when they died but were otherwise frail with serious comorbidities.