The U.S. Economy Created 559,000 Jobs in May, Missing Expectations of 664,000… The unemployment rate unexpectedly dropped from 6.1% to 5.8%.
What it means— Missing the estimate by around 100,000 jobs in a workforce of more than 160 million isn’t a big deal, but market watchers were expecting a surprise to the upside because President Biden was scheduled to speak after the release. The whisper number was one million new jobs, which makes the 559,000 jobs added in the report disappointing. Away from the headlines, 7.6 million more people are unemployed today than before the pandemic began.
This matches almost exactly the 7.9 million unemployed people who say their previous employer went out of business or lost business during the pandemic. Some of these companies won’t reopen or rehire, which will leave us with structural unemployment, where available workers aren’t close to or trained for available jobs.
Still clogged supply chains remain the largest obstacle to more robust employment. However, the unemployed’s lack of interest in getting jobs remains a significant hurdle employers cannot control. Hiring bonuses are having some impact on stimulating recruitment. The Administration gave states funding to hire one million staff. Excepting education, governments actually cut employment. Businesses are reluctant to invest in expansion or hire with uncertainty in the government’s funding of infrastructure programs.
Institute for Supply Management Services Index Reaches Record High of 64 in May… The index began in the late 1990s and made its previous record high in March of this year.
What it means— The Institute for Supply Management (ISM) Services Index measures growth or contraction in several business metrics, such as new orders, employment, deliveries, and backlog orders, across 18 service industries, including retail trade, construction, and real estate. Readings below 50 show contraction, while readings above 50 indicate expansion.
Every index except inventory sentiment showed growth, and every industry showed growth. Simply put, the economy is on fire, fueled by trillions of dollars transferred from the federal government to individuals and businesses, who are doing their best to satisfy pent up demand. The Fed governors are sticking to their view that inflationary pressures are transitory, but that’s hard to reconcile with the supply and demand imbalance in the economy. It also doesn’t address a nasty little characteristic of inflation. Unless deflation follows inflation, then prices that recently have increased remain at the new, higher levels, even though inflation might subside. We’ll get a better look at inflation next week when the government reports on consumer prices.
Russian National Wealth Fund To Sell All Dollar Assets… The fund currently holds about $60 billion in U.S. dollar assets.
What it means— Sixty billion dollars? Give us a call when the amount is worth talking about. The Russians are making a big deal about this, but in terms of global U.S. dollar assets, $60 billion doesn’t even count as a drop in the bucket. The assets are likely U.S. Treasury bonds, of which the Fed is buying $80 billion per month in addition to all the normal buyers (investors, pension funds, money market funds, hedge funds, etc.). This is a political sideshow whereby the Russians are trying to bring attention to U.S. sanctions.
For their part, the Russians say they’ll hold more assets in yuan and euros. Maybe they should make a sizable allocation to cryptocurrencies, because they appear to be earning more income in recent years through ransomware attacks. Oh yeah, the Russian government doesn’t know anything about that, just like it doesn’t know anything about the unidentified men in green uniforms that operated within its borders and invaded the Ukraine.
Mortgage Applications Down for Second Consecutive Week… The Mortgage Banker Association reported that refinancing and purchase applications both fell.
What it means— In addition to mortgage originations falling to the lowest level since the pandemic started, the Home Purchase Sentiment Index is pointing lower. That might sound like a little air is coming out of the housing bubble, but so far prices are still climbing. Fewer refinancing applications could signal that the bulk of people likely to refinance have already taken advantage of the opportunity, and fewer purchasing applications might simply reflect a lack of inventory. Price is still the ultimate arbiter of the strength of the market, and so far, prices have continued to climb.
California Restaurant Charges Patrons $5 for Wearing Masks While Ordering… Fiddleheads Café in Mendocino has signs posted informing clients they will be charged extra if they wear a mask while ordering. In the fine print, the restaurant explains that the charge is considered a donation and will be given to charities that assist domestic abuse victims. Before you praise or condemn Fiddleheads Café owner Chris Castleman for his policy, you should know that he also slaps a $5 charge on anyone boasting about their vaccination.
Castleman said in an email,
“Customers either love it or hate it. There are people who refuse to pay it; I guess a $5 donation to charity is too much for them. Others have gladly paid it knowing that it goes to a good cause. I don’t force anyone to pay, I give them the freedom of choice, which seems to be a foreign concept in these parts of the country.”