We wrote Friday that if the payrolls number was shortfall like 700,000, it would smell like a blow to the recovery, raise the perception of risk and favor the dollar. We also said payrolls themselves don’t really matter. It’s personal consumption that matters. Besides, even the million new jobs expected would leave the US behind the eight-ball, whereas other countries never got such dreadful unemployment.

Then the shortfall was truly big, only 266,000 vs. the smallest of the forecasts, ADP’s 742,000. Nobody saw it coming. And the dollar index fell instead of rising while the 10-year yield crashed to 1.46% before recovering. Risk-off and risk off in spades did not send money flowing to the presumed safe-haven dollar. What we did get was a drop in the CME’s Fed funds forecast.

As of Friday, it’s 8.2 million to go to return to pre-pandemic levels but on a trendline basis, it will take until July 2022 to return to the pandemic level in Feb 2020. Gittler at BDSwiss writes that “Unless there’s a big change in the trend, it’s going to be end-2023 before we reach anything near ‘maximum employment.’ …The [Fed’s] forecast that the fed funds rate is likely to remain unchanged until end-2023 doesn’t look so unreasonable anymore.”

The WSJ rushed out a full-bore autopsy within hours and it was the hot topic on TV news shows for several days. Was it a shortage of workers or lower demand for them, or was the Bureau of Labor Statistics’ seasonal adjustment to blame? A line-by-line analysis shows the number of long-term unemployed is still rising. Only men are getting any jobs at all, not women (who have to say home to take care of children whose schools are closed) .

Net-net, the lousy number is due to supply constraints for materials and workers, not demand by businesses to hire. And oh, yes, unemployment benefits are overly generous. Why work for the minimum wage of $7.25/hour when the government pays you $9.45 not to work? Critics fails to notice you can’t live on $7.25 or $9.45 an hour no matter who is paying it. Benefits vary by state and by a lot, but the average unemployment check is $378. Multiply by 4 and you get $1512 per month. Meanwhile, at the $7.25 minimum wage, the monthly paycheck is $1160. You can’t rent a chicken coop to live in and still eat on $1160/month. It seems too obvious to mention, but raising the minimum wage to $15 as the Dems propose would solve the problem in one fell swoop.

Then the issue is how many total jobs get eliminated when companies get that higher cost burden? Back in Feb when the $15 minimum wage became a serious subject, the CBO estimated a loss of 1.4 million jobs and higher prices for some goods, but also a lift of 900,000 out of poverty. The high end of the CBO estimate is 3.7 million jobs lost. Old studies from the 1980’s show a boost in the minimum wage does not affect jobs to any significant extent and in many instances, increases jobs. There is a lot of ideology and not enough facts in nearly every piece you read. That’s due in part to the minimum wage not having been raised since July 2009 (from $6.55), although 20 states raised the minimum this year, affecting some 7 million workers.

The US is a hodgepodge of differing wage rates by state and sometimes by city, and if anyone says they know for sure how many jobs will get lost on a wage hike, they are guessing. One factor we recall but not making the circuit now is the new situation of labor immobility, the unwillingness of skilled workers to move to other areas where the opportunity lies, a departure from the famous American labor mobility that made the US more resilient than Europe in days gone by.

Off on the side so far but not irrelevant is investor objections to ridiculously high executive pay at big multinationals. The FT reports “Six S&P 500 companies this year – including General Electric, AT&T, IBM and Starbucks – have failed to win a majority of shareholder support for pay packages. That compares with 10 instances in all of 2020 when a majority of shareholders voted against a company’s bonus plan, according to ISS Corporate Solutions.

“Some asset managers said they expected this year to be a record for failed pay votes at S&P 500 companies…. BlackRock, the world’s largest asset manager, doubled its votes against executive pay proposals in the Americas during the first three months of 2021 compared to the previous year, according to a report published last week.” For some reason, a quick Google search gives us data only from 2019 (when the corporate data folks are Johnny-on-the-spot for things like earnings.) In 2019, the ratio of CEO-to-worker compensation was 320-to-1, up from 21-to-1 in 1965. Alas, the new reluctance to approve vast increases for CEO’s is hardly the pitchfork mob.

We get the Jolts report tomorrow and that may add some nuance to the story. Then we get CPI on Wednesday and consumer sentiment on Friday. At a guess, these will do more to paint a picture of the economy than boring old things like industrial production.

Meanwhile, the surge in commodity prices is starting to become worrisome. Everywhere you look, it’s prices through the roof. Last week it was lumber. This week it’s corn and iron ore, which the FT reports “jumped more than 10 per cent in Asia trading on Monday on growing expectations that the global economic recovery from the Covid-19 pandemic would extend beyond China and buoy commodities markets.” One story has it that China is buying more than it can possibly need near-term and is therefore “hoarding.” This follows the hoarding of oil and copper in recent years. But it’s not just China–it’s also western investors, who see commodities as an inflation hedge, and not just gold, which is also up. Jimmy Rogers is beaming.

The new picture that is emerging is the worst-case scenario of faltering jobs growth and rising inflation, a form of Larry Summers stagflation. Here’s the problem–one lousy data point does not a trend make. For all we know, next month’s payrolls will be over a million as was expected this time. We have Covid and lockdown responses changing by the day, not to mention serious data collection issues (which is why payroll revisions are sometimes so big). The Fed is no doubt very worried, but nowhere near as worried as the press, whose job is, after all, to see newspapers and the one surefire way to do that is fear-mongering. Rocky’s Rule No. 4–be careful what you read.

As for trading FX, extreme caution is called for. The sterling, CAD and AUD trendlines seem robust, but some of the others are abnormal and peculiar (peso, yen).

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

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