The oddities of the American labor market

Time period: 26 June – 02 July 2021

Top news story. Excess liquidity in the US financial system almost reached $1 trillion, and on Wednesday 90 financial institutions invested a record $991.9 billion in the Federal Reserve of New York at 0.05% for a reverse REPO transaction.

RRP volume in trillion dollars per day. Source: Bloomberg

With so much liquidity and rising prices, including for oil

Brent oil price chart at 1 minute intervals

(against the backdrop of news that Saudi Arabia and Russia are up sales) it is difficult to estimate all the positive growth data, as it is not clear how distorted the inflation figures are (see previous Review). Given that data may be distorted in different ways in different industries, it is extremely difficult, if not impossible, to reconstruct the real picture.

In other words, we can only talk about trends, preferably those that are gaining strength. This is one of the reasons why in our reviews we practically do not present indicators that fluctuate within a certain normal range – they almost don’t reflect trends.


Canada’s GDP in April was -0.3% per month – negative for the first time in a year:

Canada GDP MoM

Let us remind that at the level of inflation in Canada (cf. below), even a small error in its definition can give a surge in GDP in both directions. In theory, the authorities tend to underestimate inflation, i.e., inflate GDP, but there is no guarantee of that.

Japan’s industrial production output -5.9% per month, the worst performance in a year:

Output in South Korea has been negative for three consecutive months:

South Korea Industrial Production Mom

There was also a retail, which speaks of unfavourable processes much better than other indicators (although it is also dependent on inflation because it is expressed in money):

South Korea Retail Sales MoM

And the construction industry has managed to hold steady in annual negative values, which is surprising amid the relative recovery of the world economy after the COVID-19 quarantine:

South Korea Construction Output

PMI (the index by which experts describe the state of particular industries; its value is below 50 signifies stagnation) in Chinese industry, according to the official version, is also the worst in 4 months:

China NBS Manufacturing PMI

And in other sectors:

China Non-Manufacturing PMI

It should be noted that China is not yet in recession.

India’s PMI returned to recession for the first time since the summer of 2020, with purchases falling at the worst rate in 16 years:

India Manufacturing PMI

The Russian PMI also returned to negative values:

Russia Manufacturing PMI

Import prices in Germany + 1.7% per month and + 11.8% per year, the highest since 1981:

Germany Import Prices

PPI (Producer Price Index) in France is close to the peak of 2008 (+ 7.2% per year):

PPI in Italy is close to the peak of 1995 (+8.0% per year):

PPI in the Euro Area is close to the peak of 1982 (+9.6% per year):

PPI in Canada is close to the peak of 1980 (+16.4% per year):

House prices in Britain + 13.4% per year, the peak since 2004:

S&P/CoreLogic/Case-Shiller Price Index (+14.6% per year) is a record for the entire history of the survey since the late 1980s:

The official figures (FHFA) are also not encouraging – a record (since 1991) growth rate both per month (+1.8%) and per year (+15.7%):

US mortgage applications -6.9% per week (the worst performance since mid-February) fell to the lowest since January 2020 – housing costs are too high:

Construction spending in the United States is -0.3% per month, with no overall change over the last 4 months:

United States Construction Spending

Building permits in Canada -14.8% per month to 5-month low:

Canada Value of Building Permits

The U.S. Department of Labor’s June report looks good (see the following section of this Review), but not everything – unemployment has grown unexpectedly:

United States Unemployment Rate

The number of hours worked per week decreased as follows:

United States Average Weekly Hours

The median duration of unemployment has been at its highest since 2021, and the average since 2015.

The proportion of those unable to find work for more than six months has even reached record peaks.

Unemployment in Brazil remains at its highs (14.7%):

Brazil Unemployment Rate

Unemployment in Japan is on the rise:

Japan Unemployment Rate

And retail falls:

Japan Retail Sales MoM

In Spain, too, there has been no growth in retail sales for two consecutive months:

Spain Retail Sales MoM

Natural gas prices in the US are at their highest since the end of 2018:

And since the fall of 2014 for gasoline:

The initially plummeting prices for corn and soybeans also soared after the USDA reported that the area planted for these crops is less than expected.

Summary. In the previous Review, we showed how difficult it is to estimate real GDP, and how the US adjusts it upwards. As already mentioned in the previous section, the Ministry of Labour’s report gives an optimistic picture (initial weekly unemployment claims 364,000 with a forecast of 388,000 and 414,000 a week. Employment according to the ADP in June: 692,000 jobs with a forecast of 90,000 jobs). But the question is, how is it then that the working week has been reduced and the duration of the unemployed has increased.
Theoretically, of course, one can imagine a construction in which both positive and negative processes take place. But then we have to give clear and clear explanations as to the exact mechanisms that led to this unexpected effect. If this is not done, it is much more likely that some data are overly optimistic. If one assumes that the final results for the primary applications of the unemployed and employment are modelled on a limited amount of data, and in the face of huge subsidies, these models do not fully correspond to reality, optimism may be somewhat exaggerated.
However, as we have noted above, the main indicators are trends rather than specific data. So we will continue to look closely at the American labor market.
We wish all our readers a good weekend and good summer weather!


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