5/7/21

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We need to remember the lamentation of President Harry Truman. Harry wanted a ‘one-handed economist’. Truman once complained, “All my economists say, ‘on the one hand, but on the other’.” 

 

On the one hand

 

In brief, most mainstream economists were blindsided by the Labor Department’s April job report.  The number of newly hired workers undershot their expectations. Growth in hiring decelerated despite the government’s trillion-dollar stimulus efforts and the on-going support from the Federal Reserve.

 

Experts were disappointed that U.S. employers only added 266,000 jobs, far less than the one million expected. Unemployment rose from 6% to 6.1%.

• Transportation and warehousing employers cut jobs

• Temporary help fell

• Manufacturing employment declined

• Retail jobs fell despite robust consumer spending

 

In defense of the shortfall, President Biden said on Friday, “… it’s (the small job growth) a testament to our new strategy of growing this economy from the bottom up and the middle out. And it’s a clear testament to why it’s (more government stimulus) is so needed.”

 

Economists underestimated the following supply side constraints:

 

1. Not enough workers. For months employers have complained that the federal $300 weekly jobless bonuses plus other transfer payments have made hiring difficult as many lower-income workers can make more staying at home. The Labor Department reported that the average unemployment recipient earns more than the equivalent of working full time at $15 an hour.

 

Approximately half of new labor market entrants last month were teens who did not qualify for jobless benefits because of their short employment histories.

 

The Labor Department’s latest survey showed there were 7.4 million job openings in February. In brief, there are plenty of jobs but not enough willing workers.

 

1. The demand for global chips has outstripped supply causing shortages. Semiconductor chips have become the brains for “computers, cars, toothbrushes, and tumble dryers.”

 

1. The prices of raw materials used to make a broad spectrum of products is skyrocketing and reducing demand. For example, the prices of steel, copper, corn and lumber have reached price levels not seen for years.

 

Giovanni Staunton, commodity analyst at UBS Group said, “The most important drivers supporting commodity prices are the global economic recovery.” UBS expects commodities as a whole to rise about 10% in 2021. Another factor causing prices to rise is that China is reducing the supply of many basic commodities and buying up massive amounts of grain.

 

1. Child-care burdens due to school closures are reducing the supply of workers, especially mothers.

On the other hand

 

What factors are stimulating growth? Higher vaccination rates, fiscal stimulus and the easing of business restrictions are in the aggregate supporting stronger spending.

 

Aneta Murkowska, chief economist at Jefferies, believes that the economy will continue to move ahead. She said, “It is just taking longer than expected to match people to jobs. But it is not a question of if, it is a question of when, these jobs come back.” In order to compensate for the lack of labor, employers increased the average workweek to 35 hours. The labor-force participation rate (the share of people working or seeking work) increased to 61.7%, the highest rate since August.

 

A supporter of Harry Truman during his 1948 Presidential election campaign yelled out, “Give ‘em Hell Harry!” Truman responded, “I don’t give them Hell. I just tell the truth about them, and they think it is Hell.”

 

I agree with consensus predictions that our economy will grow close to 6.45% for 2021. However, I disagree with our Secretary of the Treasury, Janet Yellen, who does not anticipate a bout of persistently higher inflation. In deference to the words of Harry Truman, I am just telling you the truth, although it sounds like Hell!