The imperfect account of inflation; And “V” against “U”

The imperfect account of inflation;  And "V" against "U"

Stock markets finally took a break last week (ended Jan. 15), with the S&P 500 falling just 1.5%; that’s down from its record a week earlier. Maybe the really poor economic data played a role, but then again, the stock markets love this poor data because it means more stimulus (Biden’s $ 1.9 trillion plan), and the markets know that ‘much of the stimulus still finds its way into the financial system. Still, for the economy, if the data for December and January continues, we could very easily have a negative quarter of GDP. The 10-year Treasury Note reached 1.15% on January 11, 12 and 14. It was 0.93% on January 4, so quite on the rise. It closed the week 6 basis points lower from that high of 1.15% to just under 1.09%. While economic statistics indicate that deflation is still a problem going forward, inflation fears appear to be driving this recent rise, with those fears being sparked by recent surges in commodity prices. It appears that after nearly a year of havoc in businesses, real structural damage has been done to the job market. The longer a body has been out of work, the lower the probability of re-employment. According to the Bureau of Labor Statistics (BLS), as of December, that probability for someone out of work for more than 52 weeks and still looking is 7.3%. And that’s only 15.4% for someone unemployed between 15 and 52 weeks. The number of newly unemployed remains a major problem. The week ended January 9 saw a spike in Initial Claims (IC) (i.e. an approximation of). The combined state and UPA (Unemployment Pandemic Assistance) programs rose to 1.44 million from 1.08 million the previous week, the highest level since the week of September 19. For state programs alone, the spike placed CIs at the highest level since the week. August 22! Granted, part of this may be vacation time (ie Lull followed by peak), but the pain in the job market is pretty intense. The attached table tells the story. The four weeks shown on the far left are pre-pandemic (pre-stop). The peak occurs, then the slow grinding. Looking at the right side of the chart, notice a flattening (lack of further progress) from October with a very worrying move up from December, and now seemingly up. The continued level of new layoffs is due to the reintroduction of business closures / restrictions in some states as the virus exploded and turned into an even more infectious strain. And, while we now have effective vaccines, it looks like the initial rollout was anything but smooth. (I should have attributed it to the private sector!) Dr Fauci says herd immunity occurs at 80%. Polls show that 35% to 40% will either not take a vaccine or want to wait and see if they are safe. It seems to displace (delay) a return to a semblance of “normal”.

Highlights

  • According to Forbes “The Flawed Inflation Narrative; And “V” against “U” “.
  • The 10-year Treasury Note reached 1.15% on January 11, 12 and 14. It was 0.93% on January 4, so quite on the rise. It closed the week 6 basis points lower from that high of 1.15% to just under 1.09%. While economic statistics indicate that deflation is still a problem going forward, inflation fears appear to be driving this recent rise, with those fears being sparked by recent surges in commodity prices.

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