‘A Sucker Punch’: Forecasters Take Jobs Day Hit

From: POLITICO's Morning Money - Monday Dec 06,2021 01:01 pm

Dec 06, 2021

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Quick Fix

Friday’s jobs report landed with a thud on Wall Street and in Washington.

Or was it a gasp? A shriek? A “holy hell”?

The headline number — 210,000 jobs added in November, according to the Labor Department — was objectively terrible, despite what you may have read on Twitter. Economists expected a gain of about 570,000 jobs for the month.

Yet the report’s underlying details were surprisingly encouraging. A separate survey of households, rather than businesses, showed roughly a million more people working last month. Almost 600,000 people joined the workforce, pushing the labor participation rate up and the jobless rate down, to 4.2 percent from 4.6 percent. And revisions to earlier data showed job growth was stronger in September and October than previously thought.

What gives? It’s just the latest reminder of how incredibly difficult it is right now to anticipate what’s around the corner for the U.S. economy.

“It is a sucker punch when you get a shock like that,” Diane Swonk, chief economist at Grant Thornton, said of Friday’s headline number. “And then to look at the household survey and see such an extraordinary divergence. You say, ‘OK, reality is somewhere in between these two.’ But we’re not quite sure where.”

The problem for forecasters is that their old rules don’t apply to an economy that is coming out of — and in many ways still grappling with — a pandemic.

For example, seasonal adjustments to economic data that are based on historical precedents aren’t particularly useful now, because this recovery is so unlike any the U.S. has ever experienced. It’s also proven exceptionally tough for forecasters to predict human behavior, from travel and indoor dining trends to vaccination and mask compliance, and how those factors will affect growth or inflation.

Responses to economic surveys are also near record low levels, meaning forecasters aren’t getting the same quality of information they were before the pandemic. That’s been reflected recently in big upward revisions to employment figures.

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It’s not just labor market data that has caught economists by surprise. Last month’s consumer price index report showed a whopping 6.2 percent rise in prices over the previous 12 months, the fastest in more than three decades and above the 5.9 percent consensus forecast. Economists expect this week’s CPI report, due Friday, could be even bleaker. A new survey out this morning from the National Association for Business Economics finds private forecasters expect consumer prices will rise 6 percent in the fourth quarter from the same period a year earlier, up significantly from the 5.1 percent they projected just three months ago.

Then there’s the virus. News of the new Omicron variant has introduced yet another forecasting variable. Will consumers pull back on services spending amid fears of a new contagion threat, or shrug it off thanks to widely available booster shots? Will new global cases further entangle supply chains, and what will that mean for already rising prices?

If forecasting during the financial crisis was like standing on a fault line — always trying to find one’s footing — forecasting now is like standing on quicksand, says Swonk.

“Every time you feel like you have a tether out, another wave of infections pulls you back in.”

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DRIVING THE WEEK

WSJ CEO Council Tuesday, featuring CEA Chair Cecilia Rouse, Commerce Secretary Gina Raimondo, SEC Chair Gary Gensler and Sen. Joe Manchin (D-W.Va.) … CFPB Director Rohit Chopra speaks to the National Association of Attorneys General Tuesday … Senate Banking nomination hearing on Export-Import Bank, FHFA inspectors general nominees Tuesday.

House Financial Services digital asset hearing Wednesday … Ways and Means hearing on “The Pandora Papers and Hidden Wealth” Wednesday … FDIC’s Tech Lab virtual discussion on banking and fintech Wednesday … House Financial Services panel hearing on diversity and inclusion at large investment firms Thursday … Labor Department releases November CPI report Friday.

IMMIGRATION TROUBLES ADDING TO JOB MARKET WOES: Our Rebecca Rainey: “Processing delays for millions of foreign workers are aggravating the nation’s labor shortage, lawmakers and business groups say, putting the dysfunction of the immigration system on display at a pivotal time for the economic recovery.

“More than 1.3 million employment authorization applications were pending before U.S. Citizenship and Immigration Services at the end of June, according to the latest data from the agency . On top of that, an estimated 1.5 million immigrants are waiting in line for employment-based green cards — many already in the U.S. on other visas — that would allow them to stay permanently, but only 140,000 are available each year.”

BIDEN EMBRACES HIS ONE-TIME FOE: WALMART — The retail giant that President Joe Biden once lambasted has become a key ally of his administration , our Hailey Fuchs reports. “The sight of a Democratic president embracing Walmart would have sent shockwaves through the political ecosystem not too long ago. But times have changed since those days when Biden and others were holding out the company as a corporate force of evil.

“Over the past few years, Walmart has adopted internal policies that have softened its image among Democrats. It has also donated to Democratic lawmakers and their causes, right as the party was forging common ground with corporate America during the Trump years. In turn, the company has won an audience with top Democratic officials, including the president himself.”

U.S. SAYS NO MAJOR TRADING PARTNER IS MANIPULATING CURRENCY — Our Doug Palmer: “The Biden administration on Friday said no major U.S. trading partner is manipulating its currency for an unfair trade advantage, although it kept Taiwan, Vietnam, China and eight other countries on its monitoring list. It also put Switzerland back on the list after removing it in an earlier report.”

BPC: X DATE COULD BE JUST WEEKS AWAY — The Bipartisan Policy Center on Friday said the government could run out of room to keep paying its bills in full and on time some time between Dec. 21 and Jan. 28, unless Congress acts to raise the debt ceiling. That updated estimate includes a $118 billion transfer the Treasury plans to make to the Highway Trust Fund on Dec. 15.

BPC’s Shai Akabas: “Those who believe the debt limit can be safely pushed to the back of the December legislative pileup are misinformed. Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit.”

FIRST IN MM: WSJ’S TIMIRAOS JOINS THE BOOK CLUB — You may have heard it through the grapevine, but it’s officially official and headed your way this spring: WSJ’s Nick Timiraos has written a book about the Fed’s extraordinary pandemic-era rescue programs. “Trillion Dollar Triage: How Jay Powell and the Fed Battled a President and a Pandemic — and Prevented Economic Disaster” is set for release in March 2022 from publisher Little, Brown, which bills it as “the definitive, gripping history of a creative and unprecedented battle to shield the American economy from the twin threats of a public health disaster and economic crisis.”

MM sidebar: Your MM host, before recently returning to Politico, spent most of the past six years working side-by-side with Nick, one of the most well-sourced, insightful economic policy reporters in Washington. This is absolutely one you don’t want to miss.

REMEMBERING BOB DOLE — Among the many online tributes to Sen. Bob Dole (R-Kan.) was this one from former FDIC Chairwoman Sheila Bair, a Kansas native who worked as Dole’s counsel on the Judiciary Committee as a young Capitol Hill staffer in the 1980s. “He was the greatest of the greatest generation,” she said of her former boss and mentor.

A message from ExxonMobil:

HOW TO QUIT IN THE AGE OF INSTAGRAM — NYT’s Emma Goldberg: “America’s quitting rate — the percentage of workers voluntarily leaving their jobs — is historically high, reaching 3 percent this fall. It is also exceptionally visible. People are celebrating their resignations in Instagram reels or ‘ QuitToks.’ They’re turning to the Reddit forum R/antiwork, where subscriptions ballooned this year, to gloat about being free from their 9-to-5 jobs. They’re tweeting screenshots of texts to their bosses declaring they have quit.”

BECOME A GLOBAL INSIDER: The world is more connected than ever. It has never been more essential to identify, unpack and analyze important news, trends and decisions shaping our future — and we’ve got you covered! Every Monday, Wednesday and Friday, Global Insider author Ryan Heath navigates the global news maze and connects you to power players and events changing our world. Don’t miss out on this influential global community. Subscribe now.

Fly Around

ICYMI: GOLDMAN’S LEADERS PUSH NEW WAYS TO JUICE PAY — Bloomberg’s Sridhar Natarajan: “For decades, a top spot at Goldman Sachs Group Inc. was seen as the pinnacle of money and power. But in today’s era of hyper-wealth creation, the bank’s most senior leaders have come to believe they’re not getting paid enough.

“Chief Executive Officer David Solomon and his deputies, who’ve contended with mounting pressure to reward trainees this year, have been searching for ways to juice their own eight-digit pay packages.

“Among the ideas floated: partaking in a cut of the richest rewards thrown off by Goldman’s own SPACs, the blank-check companies that are all the rage on Wall Street. They’ve also laid the groundwork for big raises heading into 2022 and pressed, with some success, for incentive packages.”

BRIDGEWATER CEO CLASHES WITH DALIO OVER CHINA — Bloomberg’s Sridhar Natarajan and Katherine Burton: “Bridgewater Associates Chief Executive Officer David McCormick, who is considering a U.S. Senate run, made it clear he disagrees with Ray Dalio’s politically unpopular defenses of China . On a company call, McCormick addressed controversial remarks that Dalio had made this week on television, in which the hedge fund’s legendary founder compared China to a “strict parent” when asked about the disappearance of its citizens who get in trouble.”

GOLDMAN SACHS CUTS GDP GROWTH FORECAST OVER COVID FEARS — Reuters: “Goldman Sachs on Saturday cut its outlook for U.S. economic growth to 3.8 percent for 2022, citing risks and uncertainty around the emergence of the Omicron variant of the coronavirus. Goldman economist Joseph Briggs said in a note that the Omicron variant could slow economic reopening, but the firm expects ‘only a modest drag’ on service spending.”

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Markets

WHY INVESTORS ARE OFTEN BULLISH IN DECEMBER — WSJ’s Mark Hulbert: “Chalk it up to the holiday spirit: In December, both professional stock-market timers and individual investors are more bullish than in any other month . This means a bear market is less likely to begin during the last few weeks of the year than at other times. But don’t expect a big market surge, either. The bullishness in December is more nuanced than the exuberance sometimes seen the rest of the year — which means investors probably won’t go on a buying spree.”

SMALL-CAP STOCKS HIT HARD BY OMICRON — WSJ’s Karen Langley: “The emergence of the Covid-19 Omicron variant has pummeled small-cap stocks . The Russell 2000 benchmark has dropped 7.4 percent since Thanksgiving, when the fast-spreading new variant made headlines. Last week, the index fell into a correction, declining more than 10 percent from its November record. The S&P 500 large-cap index, by comparison, has shed 3.5 percent since the variant news.”

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