Skip to main content

Sound Advice: February 9, 2022

Economics: The Great Guessing Game 

Among the most interesting (and controversial) developments affecting the investment markets are the periodic reports on what’s taking place in the economy.  The ongoing flow of information includes the weekly level of new unemployment claims, the monthly reports on the consumer price index, and the monthly reports on new jobs.  Although many esteemed economists provide regular weighty pronouncements on what the new numbers will be, the accuracy of same is on a par with a blindfolded person throwing at a dartboard.

Indeed, prior to the announcement of the job numbers for January, economists put forth estimates that averaged 150,000 new jobs, suggesting that the situation was significantly constrained by the dramatic jump in Omicron variant Covid cases.  Several even forecast a substantial drop in the jobs total.

The actual result was quite different: 467,000 new jobs.

It gets much worse because the numbers reported each month are always revised, usually by a lot.  In December, the initial report was an addition of 199,000 new jobs.  That was later revised to 510,000 new jobs.  The November report estimated 249,000 new jobs, but that was revised to 647,000 new jobs.

Not only is the probability of a gross error of concern, but equally important are the assumptions created as a result.  Given the ongoing strength in demand for goods and services, one of the biggest challenges facing businesses is finding enough labor to provide the required supply.  This have resulted in higher salaries, sign-up bonuses, and the ongoing need to maintain adequate staffing.  The latter is still constrained by health-related absences.

This relative imbalance has led to a continuation of an inflation rate that’s several times the level seen as optimal by the Federal Reserve.  Although the Fed’s actions are supposed to take into account a wide variety of business measures, the report on new jobs, even though often wide of the mark, cannot be ignored.  That makes the Central Bank’s task even more challenging.

As a result, it seems appropriate to avoid knee-jerk reactions to the ongoing flow of business information.  Patience and perspective against a long-term context will prove to be more worthwhile.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: December 27, 2023

“Well, we have a whole new year ahead of us. And wouldn’t it be wonderful if we could all be a little more gentle with each other, a little more loving, and have a little more empathy, and maybe, next year at this time we’d like each other a little more.” ― Judy Garland   N. Russell Wayne, CFP Sound Asset Management Inc. Weston, CT  06883 203-895-8877 www.soundasset.blogspot.com  
Post a Comment
Read more