The US stock markets were mixed last week as the Dow (+2.7%), and S&P 500 (+1.3%) were up and set new records, but the NASDAQ (-1.5%) fell. Meanwhile, taxable bonds and tax-free municipal bonds gained about 0.2% - 0.3% for the week. Specifically, growth stocks (those with high PE ratios) were hit hard last week, as fears of inflation took center stage mid-week. However, Friday’s job report eased some of those inflation fears, and the 10-year Treasury bond yield dropped for the week, helping bond values as well.
The big news for the week was the hugely disappointing jobs report on Friday, as the monthly jobs report demonstrated that 266,000 jobs were added in April, substantially less than the 1,000,000 economist expected. As a result, unemployment increased to 6.1%, compared to the expected drop to 5.8%. As a result, many economists, lawmakers, and pundits are questioning the policy regarding supplemental unemployment benefits, as many believe that these benefits are creating an incentive for unemployed workers to NOT return to work. After all, many people make more money receiving unemployment benefits than they did while working.
The National Federation of Independent Businesses (NFIB) reported a record 44% of small businesses have job openings, and Indeed reported that the number of job openings is 24% more than pre-pandemic levels. Thus, there is a strong demand for labor, yet the number of jobs being filled aren’t showing a corresponding increase, which is why economists, pundits, and lawmakers are drawing their conclusion. I also saw a report on TV that many businesses and industries are offering substantial incentives for new employees. Ironically, I walked into a Wawa on Saturday morning and saw a sign offering a $500 bonus to new employees and an additional $75 if they’ve been vaccinated. Looking at the sign closer, the $500 offer was a sticker placed over their previous offer of $150 to new employees. This phenomenon is having a rippling effect across our economy. While the demand for goods is increasing, the ability to produce them is not meeting that demand. As a direct result, prices are rising, and causing a spike in inflation, which could have an adverse impact on our economy. Many pundits believe this is temporary, but if this is truly caused by the supplemental unemployment benefits, then policymakers should review that carefully.