By Michael Every of Rabobank
Revising Views and Economic Gravity
Friday’s US payrolls report for once proved somewhat interesting – and also underlined just how pointless a release it is via backwards revisions that dramatically shift perceptions of what the labour market is (or isn’t) doing. Headline jobs growth was 531K vs. 450K forecast, and September was revised up to 312K from 194K, and August up from 366K to 483K. The unemployment rate dropped to 4.6%, but it’s not clear if that means anything given the BLS are evidently making this all up more than usual due to Covid distortions and via birth/death models - are new businesses really opening post-pandemic, and in the face of a supply-chain crisis, the way they would in a normal post-recession cycle?
One other data distortion that needs pointing out is a recent survey suggesting 4% of workers, concentrated most in low-wage areas, have quit their jobs on the back of crypto earnings. This sounds ludicrous. It is also possible. Indeed, as I was saying again in a recent discussion, one does not have to expect revolution to believe our current system isn’t sustainable: it can just as easily fall apart if every ‘peasant’ quits the physical economy and trades crypto.
Another is that the White House’s national vaccine mandate is already being blocked by a US court: we can argue over the efficacy of vaccinating children until its constitutionality is clarified. (How many 5-year-olds were in ICUs during Covid?) Pfizer is also now to produce a Covid treatment pill not called ‘Iver-Me-ctin-too’ because it has one key difference: this one does not get you banned from social media if mentioned. So, recovery at last? Over to you, Mother Nature.
Friday night also saw passage of the $1.2 trillion ($550bn of new money) infrastructure bill, which most Progressives, with Republican help, finally allowed on the White House pinkie-swear the same will happen for the $1.75 trillion Build Back Better (BBB) bill. However, this does little to address supply-chain or growth concerns today - indeed, Matt Stoller points out most of the cash will flow to monopolists yet again. Moreover, it remains to be seen if Progressives have squandered their resistance for a pocketful of mumbles. Such are promises from senators who could now block BBB having gotten what they want.
Given Fed tapering is still with us, one can take the view the labor market is bouncing, Covid has been vici-ed, and US fiscal stimulus looms, and so bond yields should be rising as well as equities - until that hurts equities. More so if one thinks the labor market is shrinking as workers of the world unite to use the digital means and memes of production to avoid having to work at all.
Yet, as our Rates Strategy Team has to keep patiently reminding, US QE tapering means lower, not higher yields, as it takes away demand from a financialized, not real economy; the stimulus outlook is arguably less positive than before the infrastructure bill passed; and while some of the proletariat may have become kulaks/click-aks, and others think offering financial advice to Elon Musk over Twitter gives them power (let’s see if he sells $21bn in stock), the majority face higher inflation, e.g., global food prices at a fresh 10-year high. As such, the 96% who are not click-aks face lower real wages, and so the economy will ultimately stall. Indeed, post payrolls we saw US bond yields decline, and the curve flatten, with 10s back at 1.47% at the time of writing.
Meanwhile, China may also see big backwards revisions with future implications. Not to data, where Sunday showed a larger-than-expected rise in exports (27.1% y/y) and smaller-than-expected in imports (20.6%). Rather, through Thursday it is the CCP’s Sixth Plenum.
As Bloomberg puts it: “Between each party congress, the Communist Party's Central Committee meets seven times in meetings called plenums that cover different topics…the agenda is top secret and only revealed in a communique afterward….It's the final chance for horse trading before big decisions are made at the following year's congress.” This plenum may see Xi Jinping pass an ‘Historical Resolution’, a landmark statement on CCP history and policy direction, and only the third ever if so. The first under Mao in 1945 cemented centralisation of the economy; the second under Deng in 1981 revised that view and cemented a shift to opening up; the third would cement ‘Common Prosperity’ in place - and addressing the Mao and Deng eras is possible via a resolution on: “the major achievements and historical experiences of the party’s 100 years”. The New York Times states: “While ostensibly about historical issues, the Central Committee’s resolution --practically holy writ for officials-- will shape China’s politics and society for decades to come.” Wall Street will of course call it all “regulatory changes”, if it even notices what happened.
The UK, in-between sleaze allegations, is also forging a new policy course. As the EU warns of severe consequences if London triggers Article 16 and starts a trade war, Foreign Secretary Truss, visiting ASEAN for the week, is openly stating that the UK’s new economic and international relations focus is Asia, underlining that ‘by 2050 it is Indonesia, not Germany, that will be the world’s fourth-largest economy’.
Overall, one looks around and cannot help but hum a certain song from the musical ‘Wicked’:
Something has changed within me; Something is not the sameI'm through with playing by the rules of someone else's game
Too late for second-guessing; Too late to go back to sleep
It's time to trust my instincts, close my eyes and leap!
It's time to try; Defying economic gravity
I think I'll try; Defying economic gravity
Kiss me goodbye; I'm defying economic gravity
And you won't bring me down…
Unlimited (unlimited); My future is (future is) unlimited (unlimited)
And I've just had a vision; Almost like a prophecy
I know it sounds truly crazy; And true, the vision's hazy
But I swear, someday I'll be...
Flying so high! (defying economic gravity); Kiss me goodbye! (defying economic gravity)
So if you care to find me; Look to the western sky!
As someone told me lately, "Everyone deserves the chance to fly!"
I'm defying economic gravity!
And you won't bring me down, bring me down, bring me down!
Unfortunately, we are all walking an increasing narrow, not a Broadway.