Daniel Lacalle

Unemployment inflection

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From one of my colleagues:

As of today, looks like the unemployment rate peak is behind us, and this long disastrous road of job losses that started December 2007 has ended. Job creation and job attrition look about flat. Unemployment would be able to fall naturally in the future without adding jobs because unemployment benefits run out and long-time unemployed people stop filing or reporting data–this is a data quirk, not necessarily a big positive per se.. Further, in the next 3 months, we get the once-a-decade US census hiring, which can be several hundred thousand jobs (though lined out by economists). All eyes are pointing now to expectations in June-Aug employment.

Combined with ISM’s running >50 for 7 months, global GDP coming in strong, and leading indicators running well above average (though maybe already having peaked on the recovery), seems we are in for slightly better economic picture than expected a few months ago.

Gotta be bullish for oil prices, as well as many globalized commodities. Goldman reporting US power demand running slightly above expectation in the US already, that may continue now, but admitedly its rather a shallow recovery (
Interest rates not really reacting to this data, except modestly on the front end. Further risks remain: the double dip on housing activity appears a growing risk, and end of March marks the completion of the Fed MBS purchasing program (read: mortgage rates will move higher). The sheer magnitude of bank write-downs coming on home mortgages is really just getting warmed up (the Fed kicked that can down the road, and we’re near the cul-de-sac). No idea how Fannie/Freddie even function post Fed purchasing program, they can’t warehouse all these mortgages and the banks aren’t holding new ones at all (85% securitization to Fannie/Freddie last year!)

So + industrial activity, slowly moving inflection on employment (but loads of slack to keep wages low for a while), and – on banking sector, lending. Seems that is a net/net positive environment for commodities and equities, neutral for bonds.

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