The Week in Review: November 8, 2021
Economic Growth = Job Growth
If we were to review just two economic yardsticks—job growth and layoffs—we would get a feel for what’s happening to the economy. It wouldn’t be precise, but it would be more like a back-of-the-envelope review. So, let’s look at both reports.
On Friday, the U.S. Bureau of Labor Statistics (BLS) reported that nonfarm payrolls rose by 531,000 in October, while August’s and September’s readings were revised significantly higher. The unemployment rate fell to 4.6% in October from 4.8% in September.
Undoubtably, plenty of job openings have yet to be filled, but those openings, along with higher wages, are enticing some folks. The average 2021 monthly increase through October: 582,000.
Yet it’s not simply rising payrolls. Layoffs are at a pandemic low, according to the Department of Labor. As of October 30, first-time claims for unemployment insurance were at 269,000. Outside of the last decade’s economic expansion, it’s the lowest weekly reading since 2000.
It’s important because fewer layoffs suggest economic growth may be accelerating, as on average, businesses are increasingly reluctant to lose employees.
Main Street vs. Investor Disconnect
Most economic reports are signaling the economy is expanding. Yet the public is far from convinced. Gallup’s Economic Confidence Index for October registered its weakest reading since April 2020, according to its monthly survey.
Even as the unemployment rate declines, the public seems to be growing increasingly concerned about higher gasoline and food prices and spot shortages of various goods.
Be that as it may, investors are more focused on general economic growth, which supports corporate profits, and low interest rates, which offers little competition for stocks.
At last week’s Federal Reserve meeting, the Fed seemed to be in no hurry to raise interest rates next year, despite the jump in inflation. Instead, Fed Chief Powell vaguely deferred to economic performance as his benchmark for boosting rates.
Most observers give Powell high marks for the Fed’s actions during the early days of the pandemic. But, and let’s not get too cynical, might Powell be talking low rates as he hopes to be reappointed by the president for another four-year term?
His stint at the Fed is up early next year.
Bottom line, if we were to put it into a simple equation: Profit growth plus low interest rates have been supportive of stocks.
On Friday, the three major U.S. market indexes closed at new highs, per MarketWatch.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
According to the National Association for Business Economics, in the last three months, a record-high number of U.S. companies (58%) increased pay at their firms. Meanwhile, 0% of companies lowered wages. —Yahoo! October 25, 2021
In 2022, the annual Social Security cost-of-living increase, or COLA, will be 5.9%, the largest increase since 1983. However, health care costs have been rising faster than federal cost-of-living adjustments for a long time. By one estimate, adjusted for what seniors actually spend money on, the purchasing power of Social Security income has declined by 30% since 2000. —The Motley Fool, September 26, 2021
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