Luxury problems

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The official jobs figure of 266,000 last Friday was much lower than the one million the market had expected. In addition, the March figure was revised sharply downwards from 916,000 to 770,000. The unemployment rate rose to 6.1 percent instead of falling to the expected 5.8 percent. The average hourly wage was higher than in March, but compared to the same period last year, it is at the same level. Expectations were so high because the US economy is increasingly reopening.

The jobs figure from payroll processor ADP published two days earlier was also lower than expected, although in the past we would have been satisfied with 742,000 new jobs. But expectations were even more positive with 850,000 new jobs. On the positive side, the number of new jobs for March was revised upwards to 565,000. What is strange is that these figures have been diverging sharply from official government figures for a few months now. President Biden and Treasury Secretary Yellen defended the weak jobs report by pointing out that many people are still afraid of corona and therefore do not dare to go to work and that many schools and childcare centres are still closed, forcing many people to stay at home to take care of their children themselves. Yellen added that a number of industries are experiencing supply disruptions, including chips, which has led to production stoppages and the inability to hire new workers.

According to the American Chamber of Commerce, however, a large part of the disappointing figure is due to the temporary government allowance of $300 a week, which makes it very tempting for many Americans to stay at home rather than go to work. A luxury problem, in other words. The Chamber of Commerce’s own research has shown that because of these benefits, at least one in four recipients would rather sit at home unemployed than go to work for that amount of money. States like Florida, Montana and North Carolina are already tightening the eligibility requirements for unemployment benefits. If people do not meet these conditions, they can lose their entitlement to benefits.

The market reaction was tepid, as markets assume that this will reduce the pressure on the Fed to raise interest rates. After all, the Fed keeps a close eye on developments in the labour market when it comes to interest rate policy. And so, for the time being, it does not look like there will be any upward pressure on wages and thus structurally higher inflation. That concern is ebbing away from the market anyway, despite the fact that a number of economic indicators such as retail sales and producer confidence have shown a sharp recovery, and the housing market remains as strong as ever. And anyway, it is not the possibly higher prices that might hamper economic development, but the shortages of raw materials, chips, and semi-finished products. Selling “No” is always the most expensive solution for the last one in the production chain. Moreover, it is also known that demand does not always return.

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