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Labor Pains

Updated: Aug 20, 2021

Payroll Gain is Amongst Largest Downside Miss Ever

Payrolls rose $266,000 from a month ago, according to a Labor Department report Friday, May, 7th 2021 that represented one of the most significant downsides miss on record. Economists in a Bloomberg survey projected a $1 million hiring surge in April 2021.

Catching the media's eye, there is some concern from a miss standpoint. This would be the biggest miss ever at more than three standard deviations out from the mean, so in other words, it shouldn't have happened.

McDonald's Struggle with Unemployment Benefits

The National Owners Association (NOA) is an organization "to unify Owners to "Lead Together Again" and save our culture while assuring the owners have net cash flow growth, financial viability and are immune from intimidation and retribution." McDonald's is a part of this organization. They're having trouble hiring employees due to unemployment benefits and say an 'inflationary time bomb' will force them to hike Big Mac prices up.

Here are a few key quotes from the NOA letter to its members:

"What's going on here? When people can make more staying at home than going to work, they will stay at home," the letter read, which was obtained by Insider. "It's that simple. We don't blame them. We fault the system."

"Natural human behavior is to choose to receive more money while staying at home than working for a highly demanding job — especially with the amount of stress that is being put on employees right now."

Welfare Wall- Economy

In the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania, explained, "a single mom is better off earnings gross income of $29,000 with $57,327 in net income with benefits than to earn gross income of $69,000 with net income and benefits of $57,045." They came up with this ten years ago. So $69,000 is a good salary now, but an excellent salary then. The skillset that is needed to bridge that gap would be pretty difficult to cover.

But what was more shocking is the chart below that Steven Rattner, New York Investment Asset Manager, tweeted. The chart showed tens of millions of US workers, in jobs ranging from the dishwasher, to the hotel clerk, to preschool teacher, to anyone on minimum wage, can now earn more from unemployment than from their regular job.

If you look at the unemployment bar, people get an equivalent of $11.23 to $7.25 per hour for minimum wage. Also, the median salary of $20.08 is compared to $17.78. As you can see, unemployment benefits have affected different parts of the labor market differently.

So, what is the other argument outside of just unemployment benefits taking up additional employees?

If you look at who is going back to work, there are many more men represented than women. It may not be disincentives, but rather the burden of children still at home from school falling on women, not allowing them to go back to work. Another problem with this is the question of the labor market having to compete with the government to get these people to come back to work.

We are not seeing the polls that you would expect if they were competing with the government. You would expect the low-wage employment to be rising as they're trying to offer higher benefits to attract the person coming in.

The next issue is regarding the miss and not showing up in other datasets. If we look at the chart below from ADP Research Insitute regarding data leisure, hospitality, trade, and transportation, these areas pick up the most jobs and have the most job openings.

The data shows $742,000 of payroll gain compared to $266,000 from the Bureaus of Labor Statistics. At the moment, GWS believes a lot is going on here, and probably a significant part is sampling. The Bureau of Labor Statistics is trying to control things such as working part-time, contracting, going full-time, how many companies have been created, and how many companies are lost, ultimately showing a sample error.

Effects on the Stock Market

What has been driving the stock market is stimulus, whether it's a federal stimulus or not. The federal reserve still sees these unemployment numbers, and they have a dual mandate to maintain the purchasing value of the currency and keep unemployment low. They think inflation's transitory, moving to a 36 month rolling 2% average. When we look at the data, we have some low numbers going back 36 months.

They think inflation isn't a thing, but they are working out of a paradigm, a trade-off between inflation and unemployment. Whatever the reasoning behind the actions is, the Feds are going to continue to be accommodated. Next, we have unemployment data that says the recovery isn't happening as quickly as we like. CPI is on an annualized basis at 0.8, that's 9.6%. You can see in the chart below if inflation did cause interest rates to move up, then the 30 years could be down 20% and the ten years down 8-9%.


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