The Jobs Report No One Saw Coming

It was a heck of a week as the markets drifted ever higher.  Earnings announcements continue to drive investors into equities which, like a snowball rolling downhill, pick up both momentum and speed.  That’s not to say there aren’t bumps along the way, but the economic recovery and hopes for its sustainability are driving markets into new, higher territory.

Before we get to news this week, let’s talk about the one piece of economic data which caught everyone by surprise.  An expected U.S. hiring boom crashed into a wall in April, with employers adding a measly 266,000 new jobs – sharply missing Wall Street's expectations – amid a growing shortage of available workers.  The Labor Department reported that despite estimates for as many as 1 million new jobs in April there were only 266,000 people that re-entered the workforce.  Bank of America noted Americans that earned less than $32,000 before the pandemic would be better off in the near-term collecting the expanded unemployment benefits rather than working.  Some speculate this could be what's at play.  The expanded benefits will expire September 6, 2021.

While I know you’d rather me talk about the divorce of Bill and Melinda Gates, or Warren Buffett’s latest musings from his annual meeting, let’s instead talk about bank balance sheets.  You’re probably thinking, huh?  Hear me out.  Banks are unusually flush with cash these days, which in ordinary times would be a good thing.  It seems savers deposited nearly $1 trillion last year, and almost certainly more this year due to fiscal stimulus.  However, banks are reporting fewer people are taking loans, possibly due to the unprecedented level of fiscal stimulus.  In the absence of lending, extra deposits can be costly for banks, putting pressure on their regulatory ratios and eventually requiring them to hold more capital.  One way for banks to circumvent this issue is to push savers into money market accounts which are not included in leverage ratios.  These are indeed strange times.

Talk of bubbles made headline news this week when none other than Janet Yellen, the current Treasury Secretary and previous Chairperson of the Federal Reserve, suggested higher interest rates may be necessary to cool an overheating economy.  This is at odds with the current Chairman of the Federal Reserve, Jerome Powell, who repeatedly has tamped down talk of the economy overheating and the potential for runaway inflation.  Making a rare appearance at a White House press briefing, Ms. Yellen was forced to walk back her comments.  She said today, “the road to recovery remains a long-haul climb, somewhat bumpy, and doesn’t expect full employment until sometime in 2022.”  She also stated that she doesn’t think the supplemental unemployment insurance benefits are keeping people from going back to work.  It seems someone was told to eat her peas.

In closing, I came across an interesting statistic that I want to share with you.  It seems, 7% of Americans don’t use the internet at all.  While it is hard to imagine getting through one’s day without touching the Internet in some form or fashion, 25% of those over the age of 65 report never going online.  Additionally, 14% of adults with a high school education or less do not use the Internet.  Also noted, there are no statistically significant differences in non-internet use by gender, race and ethnicity, or community type.  However, this does not suggest that older adults aren’t changing, merely that they may be slow adopters.  For example, 86% of adults 65 and older did not go online in 2000; today that figure has fallen to just a quarter.  It’s an interesting stat and I can’t help but wonder what this will look like in another ten or twenty years.  I imagine by then we’ll be plugged in 24/7 and be shuttled around in our self-driving electric cars.  The future is going to be a strange place.  Now you know.

Bruce J. Mason, MBA