Lukewarm Disappointment
The US economy added 559,000 jobs in May, the BLS said Friday.
In a normal environment, that would be a stellar number. At the current juncture, it counts as lukewarm, at best.
Officially, May's headline print was a downside miss. Consensus was looking for 670,000 (figure below). The range was 335,000 to 1 million. A sizable ADP beat seemed to presage a similarly ebullient NFP, but once again, the ~1 million blockbuster market participants have spent months whispering about proved elusive.
The market narrative of a quick bounce in employment followed by rapid unwinding of Q/E looks flawed. That said the numbers were pretty good, just not up to the clack on the street. The Fed just starting the first step in unwinding the extraordinary aid. They announced they would sell their corporate bond and corporate bond ETF with a goal of being out by the end of the year. The next logical step will be to gradually reduce Q/E and get to flat by the end of 2022 or early 2023. If all works out that could set the stage for raising short term rates off zero by somewhere around mid 2023 to early 2024.
The silliest thing about the corporate bond “unwind” story is that there’s nothing to “unwind.” Not really anyway. Those facilities were almost purely symbolic. It was “the thought that counted,” so to speak. As BBG’s Seb Boyd (he’s good) put it this week, the actual purchases barely counted as a rounding error — they “added up to a Thursday in the primary market.” Combined high grade and HY supply was almost $200 billion last month alone. Compare that figure to the size of the Fed’s corporate bond “portfolio.” That’s not moral hazard. It’s not even a drop in the bucket.
It is also well to keep in mind that employment tends to be a LAGGING indicator of the economy both up and down, and that there is so much going on that numbers alone have large errors. We won’t get a clean read without so much noise until this fall is my guess.
I have been in Boulder, CO, Chicago, IL, Seaside FL and the Bahamas in the past 10 days. Nowhere was “back”. Seaside was the busiest, everywhere else was at 50-75% capacity. I am fully vaccinated and just got my negative covid test results so I can get back in the US. The amount of paperwork involved to travel now is insane, fyi.
I was on a “binger”.