Money! About That June Jobs Report (The Fed’s Balance Sheet Still Out In Force!)

The Federal Reserve’s policies remind me of the Cabaret tune “Money.” There is still almost $9 trillion in monetary stimulus outstanding.

For all the economic cheerleaders out there like CNBC about the June job report, they generally ignore what is driving the jobs report: The Federal Reserve!

Take the US U-3 unemployment rate. The Biden Administration is proud of the unemployment rate of 3.6%. But if you look at the chart of unemployment relative to The Fed’s balance sheet expansion due to Covid lockdowns, there is still almost $9 trillion of Fed stimulus outstanding.

Of course, the lockdowns were pure economy killers, so opening the economies again led to the unemployment rate falling to 3.6% which is still higher than before the Covid outbreak. But The Federal Reserve has been painfully slow at shrinking its balance sheet, leaving almost $9 trillion in monetary stimulus outstanding.

Take average hourly earnings growth. The media is all smiles as US wage growth declined to 5.1%, much higher than pre-Covid.

Then we have inflation, at 40-years highs thanks to massive Fed stimulus (and Federal spending).

And if we deduct inflation from average hourly wage growth, we see REAL wage growth declining at a -3.25% YoY clip.

Lastly, we have the US Dollar. Nothing has been the same since the financial crisis of 2008 and the entrance of The Federal Reserve distorting the economy and prices. Not to mention the US Dollar.

The Fed leaving its monetary stimulus out in force for so long is a major policy error. So what happens when The Fed actually gets serious about withdrawing the monetary stimulus (likely after the midterm elections)?

Slowing! Jobs Friday Shows Decline In Jobs Added, Real Avg Hourly Earnings Growth Now -3.25% YoY (NOT The Strongest Economy In History!)

There is no doubt that the US economy is slowing, thanks in part to The Federal Reserve’s sudden crusade to slow inflation (caused by … The Federal Reserve and Federal spending).

My favorite chart is US Average Hourly Earnings YoY. It peaked in March at 5.6% and has been slowing to 5.1% in June. BUT historically high inflation has caused REAL US Average Hourly Earnings YoY to decline to -3.25%.

The good news? 372k jobs were added in June. The bad news? It was lower than jobs added in May (390k) showing a slowing trend.

Unemployment remained at 3.6%. Labor force participation fell to 62.2%.

The US labor force participation remains below the pre-Covid levels despite staggering Fed monetary stimulus. But what happens when The Fed’s “Snake Juice” is withdrawn??

Here is a nice summary table.

US 30 year mortgage rates resumed their vertical climb as The Fed continues to tighten their loose monetary policy.

But the jobs report was good enough to lead to the US Treasury 10Y yield to jump 10.3 basis points today.

US Mortgage Rates Fall To 5.30% As Q2 Real GDP Falls To -1.9% (The Economy Is Falling To Pieces)

Mortgage rates are falling … to pieces. Along with the US economy.

As the US approaches recession and the Atlanta Fed real-time GDP tracker falls to -1.9%, we are seeing mortgage rates falling to 5.30%.

Real Q2 GDP? Still in the doldrums at -1.9%.

Biden is likely walking after midnight trying to find someone to blame for his declining economic prospects ahead of the midterm elections.

Alarm! Challenger Job Cuts Rise 58.8% YoY As Real Wage Growth Is Negative At -3.34% YoY (10Y-2Y Yield Curve SCREAMS Recession)

Alarm!

As most economists are aware, unemployment rates are not a leading indicator of a recession. But job cuts ARE a leading indicator.

Challenger US job cuts rose 58.8% YoY in June. Combine that with negative REAL wage growth (-3.34% YoY) and we have a problem.

Unemployment rate (U-3) is a poor leading indicator of recession since unemployment rates are the lowest before a recession.

Further signaling problems for the might US economy is the US Treasury yield curve (10Y-2Y). It is inverting.

In this slowing economy, there will be fewer people singing “Take This Job And Shove It!”.

Sloth-Slow? Fed Expected To Raise Target Rate 75 Basis Points As Recession Fears Grow (Trying To Force A Recession??)

Generally speaking, The Federal Reserve cuts rates as a recession approaches. But not this time!

The Federal Reserve is expected to raise their target rate by 75 basis points at the next FOMC meeting.

We are already seeing Fed rate hikes being priced into the mortgage markets, as Bankrate’s 30-year mortgage rate fell to 5.57% after rising above 6% in June. The reason? Recession fears have caused Treasury yields to fall.

The Fed is hiking their target rate, but has been sloth-slow in unwinding their balance sheet.

Yes, The Fed has been sloth-slow in removing the Covid-related stimulus. But is The Fed trying to pull a “Volcker” by raising rate to choke off inflation EVEN IF THE ECONOMY ENTERS RECESSION? Fed Funds Futures data is pointing to a reversal of Fed rate hikes by Feb 2023.

Here is Fed Chair Jerome Powell showing the amount of Covid-related stimulus removed recently.

Bidenflation Strikes! Dow Down 2% As Recession Fears Grow (Check Out M1 Money Growth!)

Lightning strikes!

Inflation has been a disaster for millions of Americans. As inflation grows (highest in 40 years), fears of recession are jolting markets.

The Dow today is down 2%.

Then again, Europe is down even more.

My favorite chart for explaining the surge in inflation is M1 Money Stock around the Covid outbreak in early 2020. Which has NOT been removed.

The US Treasury 10Y-2Y yield curve just inverted.

No, this is not a real ECB currency, but it might as well be.

Ted Day! Spread Between 3M Libor And 3M Treasury Yield Rising Fast (Recession Alert!)

Its Ted Day!

TED refers to the difference between the three-month Treasury bill and the three-month LIBOR based in U.S. dollars, a measure of fear in the market.

The 3-month TED spread is rising awfully fast. A sign of impending recession.

US bank credit default swaps (CDS) are rising fast as inflation gets ugly.

The US Treasury 10Y-3M curve is bumping against the zero barrier.

I am still shaking my head at President Biden chastising gasoline stations for not lowering prices at the pump when refiners are near full capacity and the Biden Administration is doing nothing to increase the supply of US-source non-green energy.

But what the heck. It’s Ted Day!

Misdirection On Inflation? US Refineries Near 100% Capacity As Gasoline/Diesel Prices Rise (Fed Hasn’t Removed Monetary Stimulus Yet)

The Biden Administration blames everyone else for the highest inflation in 40 years (like Russia), everyone other than themselves, of course.

Amazon’s Jeff Bezos got it right — massive Federal spending (too much stimulus pumped into markets in a short period of time) is a major inflation culprit.

Amazon founder Jeff Bezos took aim at President Biden, arguing the Biden administration’s “misdirection” is harmful to the country while pinning the blame for inflation on the president.

“In fact, the administration tried hard to inject even more stimulus into an already over-heated, inflationary economy and only Manchin saved them from themselves,” Bezos said on Twitter Sunday. “Inflation is a regressive tax that most hurts the least affluent. Misdirection doesn’t help the country.“

Well stated. But other factors are contributing to inflation such as excessive monetary stimulus and rising gasoline/diesel prices thanks to Biden’s halt of fossil fuel drilling. And then Biden asked gas stations to lower prices (only a career politician like Biden would think that this is a good idea).

The problem facing Americans is rising gasoline/diesel prices and refineries operating at near 100% capacity. The theory coming out of Washington DC is that if DC raises gasoline prices enough. But we are seeing refineries at near full capacity DESPITE gasoline prices being up over 100% since Biden took office in January 2021.

And The Federal Reserve still has not removed the Covid-related monetary stimulus yet.

Fourth of July has become a Weekend at Joe’s.

Heartaches On Heartaches! US Court Ruling May Take 70,000 Truckers Off Road, Spur Jams (Diesel Prices UP 118% Under Biden, Things Just Keep Getting Worse)

Hey, I thought Mayor Pete Buttigieg, the US Transportation Secretary, was supposed to unclog the supply-chain crisis! Instead, we get heartaches on heartaches as diesel prices rise 118% under Biden AND now the bottle-necks may get a lot worse.

A US Supreme Court decision that could force California’s 70,000 truck owner-operators to stop driving is set to create another choke point in already-stressed West Coast logistics networks, a truckers’ organization said.

“Gasoline has been poured on the fire that is our ongoing supply-chain crisis,” the California Trucking Association said in a statement following the Supreme Court’s decision to deny a judicial review of a decision of a lower court, a process known as certiorari.

“In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation,” the CTA said.

The association asked the Supreme Court for a review of a case challenging California’s Assembly Bill 5, a law that sets out three tests to determine whether a worker is an employee entitled to job benefits or an independent contractor who isn’t. The trucking industry relies on contractors, and has fought to be exempt from state regulations for years because of federal law.

With few exceptions, the relationship between independent truckers and their carriers, brokers and shippers will be governed by the tests.

As if US consumers aren’t getting crushed by rising prices already. In response to the Covid outbreak, The Fed slammed its foot on the money accelerator along with Federal government stimulus. Throw in Biden’s anti-drilling executive orders, and we have a nightmare.

Consumer confidence is already crumbling under inflation and rising energy prices.

Let’s get ready to stumble.

The End? Home Sellers Are Slashing Prices in Sudden Halt to Fed’s Stimulypto Boom (Dallas, Phoenix AZ And Las Vegas NV Seeing >20% Price Cuts)

As The Fed raises rates in their attempt to wrangle inflation, we are seeing an about-face in the US housing market.

The pandemic-related Fed monetary stimulypto begat a housing boom that is careening to a halt as the fastest-rising mortgage rates in at least half a century upend affordability for homebuyers, catching many sellers wrong-footed with prices that are too high. It’s an astonishing turnaround. Just a few months ago, house hunters felt pushed to make offers within days, waive inspections and bid way above asking. Now they can sleep on it and maybe even shop for a better deal.

It doesn’t mean real estate is heading for a crash on the order of 2008. But when a market reaches these heights, even a drop toward normalcy will feel steep. And of course, a recession could make everything worse.

Dallas, Phoenix AZ and Las Vegas NV are leading in the price-slashing derby.

Is this the end for the home price bubble?

Or is the music over with The Fed tightening monetary policy to fight inflation.