Halyard’s Weekly Wrap – 09/03/21

The Bureau of Labor Statistics reported that the U.S. economy only added 235,000 new jobs is August. That was well below the anticipated 733,000 that was the consensus expectation. The immediate question is that number weak enough to convince the FOMC to postpone the tapering of open market purchases. Given the verbal jousting of the various Fed Presidents and Governors over the last few weeks, we conclude that the answer is a solid Maybe.

There’s no doubt that the $120 billion monthly purchases is distorting interest rates. With rates across the yield curve very nearly at zero, the Fed can declare “mission accomplished.” But part of that accomplishment is an arguably wildly overvalued stock market. The question we suspect the Fed members are asking themselves is, “will tapering undermine record high stock indices?” It might, but that’s not part of the Fed’s dual mandate to keep unemployment low and inflation stable. The unemployment rate has fallen to 5.2% from 14.8% in April 2020, while the annual CPI is 5.4%, well above the Fed’s 2% target.

The Fed can take solace in the year-over-year average hourly earnings which rose 4.3% in August. The shortage of workers has forced employers to push salaries higher to attract staff. The once controversial $15 an hour minimum wage has effective been put into place. What’s holding prospective employees from signing on to that wage is the dual comfort of government assistance and the ability to work from home. The latter was expected to end with Labor Day, but the Delta variant has delayed that day of reckoning. With government assistance diminishing and more employers insisting that workers report to work, we expect that we’ll continue to see the unemployment rate tumble.

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