Good Economics, On the way to Great

 Payroll employment rises by 916,000 in March; Unemployment Rate edges down to 6.0%

-Bureau of Labor Statistics

    Great news, not only because of the data, but how much the data exceeded expectations. There is no doubt that economic activity is increasing, and the Bureau of Labor Statistics suggests that employment will continue to increase to meet the challenge of existing unemployment that is understated by the low unemployment rate. For now, the Job growth was widespread in March, led by gains in leisure and

hospitality, public and private education, and construction.   

     The news comes as the past month has been punctuated by declines in many of the recent growing sectors of the economy such as Home Sales & Starts and Manufacturing. But this week the bad news was also offset by the release of data that tracks Consumer Confidence*, which rose to the highest level in a year. Most welcome was the Conference Board’s assessment that both current business conditions and job availability improvement came from what they described as a burst of optimism comparable to the months coming out of the financial crisis. From my perspective, I’m interested in whether that optimism translates into inflation, and that’s where recent data showing the Personal Savings rate at 13.6%, the highest level in over ten years, comes in. When the consumer saves in lieu of consuming, as they’ve done on and off during the pandemic, the question is, will that discipline wane in favor of spending. Given today’s impressive rise in Non-Farm Payrolls I’m more confident that further discretionary cash will come from rapidly rising employment. Possibly a source of inflation, yes, but not necessarily harmful to the markets.

    On a final note, the rise in construction jobs was a welcome indicator, especially when a new infrastructure bill is being introduced. Last year when accounts began to accumulate investments related to infrastructure the strategy was an easy one. Infrastructure has always been of bipartisan interest, except when it comes to paying for it. Irrespective of the divided narratives outlining the details, the legislation could have some interesting turns particularly regarding tax changes to fund the plan. It’s not surprising that a democratic plan aims to tax corporations and the wealthy. As far as corporate taxes are concerned, the increase of the corporate tax rate to 28% isn’t really a surprise since the move to take it down to 21% was never permanent to begin with, and smart companies knew that. So, in my opinion, the change may have less impact on the market than the dour predictions of our “experts” would suggest. Overall, the bill will be a lively debate but in the end will be pushed through legislation as all bills have been with current and past majorities. While the debate continues the markets can continue to move higher and the strategy to perform.