This morning employment situation data was released including the unemployment rate and nonfarm payrolls. The unemployment rate ticked up .1% to 5.9%. This was a shock to the bank research teams who had a consensus estimate of 5.7%. Nonfarm private payrolls increased by 662k; this surpassed the consensus estimate of 600k. The labor participation rate was also released and it showed it holding steady at 61.6%.
And while this may sound confusing that unemployment would go up while jobs are being added my attention was elsewhere:
Above are the average hourly earnings of all employees. I’ve added the red trend-line to show how much above trend we are currently running. The current average hourly rate is $30.40/hour. That is approximately $0.65 above the trend. The earnings rate increased at a rate of 0.3% month-over-month. This is funneling more money into workers’ pockets and is going to continue to put upward pressure on prices. I believe it will also incentivize more workers to search for jobs.
A wild card to keep in mind;
When the government unemployment bonuses officially end in September, employers will have difficult decisions to make. Some believe that wages will be suppressed when this happens. They believe that with an influx of new people hitting the job market, that this would put downward pressure on wages. I have a hard time believing this. New workers may be started at a lower wage but once a worker has been hired at a specific wage, employers rarely reduce that wage because they worry that the time and training that the employee has received will go to waste if they leave. What happens to employers when confronted by employees that do the same job and aren’t paid the same rate? Workers discuss their wage rates. It happens. Will employers feel obligated to match wage rates? Will there be strife and contention? That surely doesn’t make for a positive work environment. This is something to ponder as we move through the summer and see more states drop the federal bonus payments.
Every Friday the Fed posts the Assets and Liabilities of Commercial Banks. According to Mises (and Rothbard), bank credit to business is what generates the boom-bust cycle of the market. When banks are lending to businesses, businesses are expanding and generating income, which then fuels the fractional reserve system. Pairing the lending data with the money supply data gives me a better picture on what is going on with the economy. Unfortunately, the shutdowns have put a real wrench in the numbers:
Businesses borrowed PPP money, drew on their lines of credit, and did anything they could to withstand the long government shutdown. You see this in the big run-up with a peak in May 2020. These actions broke the trendline and have muddy the waters. Businesses now feel unsafe borrowing money until future economic conditions are more certain. Since the Fed updates this data late on Fridays, I’ll be spending more time on Monday mornings reviewing it.
Lastly, durable goods:
Orders have rebounded after the slight drop in April. They increased 2.3% month-over-month and are close to the pre-shutdown high of 255,924. It seems to me that consumers are continuing to purchase and are making up for lost time.
As a reminder, there will be no alert on Monday, July 5th, as the market will be closed. Hope you all enjoy the 4th of July weekend!
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