Strange economic numbers continue to show up in our post-Covid world and the most consistently surprising of these numbers has to do with employment…
“If every unemployed person in the country found a job, we would still have 4 million open jobs.”
- U.S. CHAMBER OF COMMERCE
So, according to the U.S. Chamber of Commerce we have more jobs than employees and there are only 5 states where this is not the case. That lends for interesting dynamics in the financial markets when the Federal Reserve stomping on the economic breaks with aggressively higher interest rates.
One has to ask how the employment numbers remain so strong – and of course government involvement because of Covid has something to do with the present employment situation.
During and after Covid, government support for those who lost work and other subsidies made it easier for people to stay home and out of the workforce. A Chamber of Commerce survey found that 1-in-5 people have changed their work style since the pandemic, with 17% having retired, 19% having transitioned to a homemaker role, and another 14% working only part time. Ed Dowd who is a former Blackrock guy on Wallstreet is putting out research that the vaccination has handicapped several million workers and put them into the disability category. His thesis is that more disability claims has tightened the labor pool and that is the driving force behind low unemployment even though the Fed is aggressively raising interest rates.
Regardless of the reason, unemployment remains stubbornly low and the Fed will have that to contend with if they are going to bring inflation back down toward 2 percent…
On the other side of the coin some economic numbers don’t look so hot. A.P. Moller-Maersk A/S, the world's largest owner of container ships and one of the best bellwethers for global trade, has spent the last several quarters warning about a slowdown in container demand on major shipping lanes. The Danish shipping and logistics group released yet another warning last week - this time it feared a contraction in global trade would be longer and deeper than previously thought:
The inventory correction observed since Q4 2022 appears to be prolonged and is now expected to last through year end. Based on the continued destocking, A.P. Moller – Maersk now sees global container volume growth in the range of -4% to -1% compared to -2.5% to +0.5% previously.
The shipping numbers look pretty tepid and of course everyone is still pointing toward China wondering when they will start showing better economic numbers. The collective Chinese credit card was the largest recovering force for the world economy after the 2008 meltdown – that hasn’t been the case post Covid.
Big news hit last week when Fitch officially downgraded its U.S. credit rating from AAA to AA+. Of course, this is huge news and Fitch cited many of the factors we have been discussing for years in order to justify their downgrade decision. By and large, the national debt burden is of serious concern and with budget deficits EXPANDING rather than contracting now that we are past Covid – reasonable people need to be concerned…
Not only are these debt numbers rocketing to the stratosphere, but the amount of interest that has to be paid on the debt is rocketing higher too. Don’t forget, after the Fed took short term interest rates to zero in response to the 2008 economic meltdown, the Treasury started spinning longer term debt notes and bonds into shorter term bills when they matured because the interest payments were so low. Consequently, even though total debt owed by the Federal government dramatically increased in the years after 2008, the total interest being paid on that debt was actually going down as interest rates were so low. Obviously that has come snafu on our financial overlords as now interest rates are booming higher on bigger numbers of debt – a double whammy. Interest payments on the national debt has already gotten to the fourth largest budget item at more than $650 billion annually behind Social Security and Medicare. Soon these interest payments will surpass national defense and be the third largest budget item. One has to wonder when the Minsky Moment rears its ugly head – next week we will talk about formulating a Plan B to hedge some of our risk.
Regards and good investing,