On Friday, February 5, markets were set to rise no matter what the employment data showed. If they beat to the upside, that would validate the reflation/pent-up demand narrative. If they disappointed, well, that would simply mean more fiscal and monetary largesse (which financial markets love). Either way, heads markets rise; tails, ditto.
Labor Market Signals: Positive, Negative and Mixed
As it turns out, there was validation for every viewpoint in the latest Bureau of Labor Statistics Employment Report:
· Negative: The Establishment (Payroll) Survey grew just +49K disappointing the consensus view of +105K. Worse, December was revised down by -87K and November by -72K.
· Negative:
Leisure/Hospitality: -61K
Retail: -38K
Transportation/Warehousing: -28K
Manufacturing: -10K
Banking/Finance: -3K
· Positive: State and Local Government: +67K (But this means that payrolls in the rest of the economy were -18K!)
· Mixed: The Unemployment Rate (U3) fell to 6.3% (good), a decline that was mainly due to a -406K fall in the labor force, i.e., people dropping out having given up (bad).
· Mixed: The workweek rose to 35 hours (+0.9%). Hours worked in Leisure/Hospitality rose +2.4% and +1.3% in Retail, even as there were significant pink slips in these sectors. This tells us that businesses chose to meet demand by working the existing staff OT instead of hiring, just in case the rise in demand proved to be temporary.
· Negative: The diffusion index in the Labor Survey fell to 48.1 in January from 61.9 in December. Fifty is the demarcation between expansion and contraction, so this means more firms were laying off than were hiring.
· Positive: Average hourly earnings rose +0.2%. This was due to the mix of employment (the rise in state and local jobs which pay above average) and to the expansion of the workweek.
· Negative: “Permanent” job losses rose to 3.5 million; the number of unemployed for more than six months reached 4 million; the number of labor force dropouts is more than 4.3 million with more than 50% of these in their prime working years (ages 25-54); the average duration of unemployment rose to 26 weeks, up from 21 weeks in September.
· Positive: For the third week in a row, the Department of Labor (DOL) reported that there was a fall in Initial Unemployment Claims (ICs) in the state programs and in the special Pandemic Unemployment Assistance programs (PUA). The chart and table show a fall from 1.422 million the week of January 16 to 1.165 million the week of January 30. [Note: As indicated last week, the California data were troublesome showing huge declines for two weeks in a row. Last week, about half of those decreases were reversed. What caught my eye was the fact that Illinois data showed a -58% decline (-55,089). Remember, there were major winter storms in the northern part of the country during this reporting week. Other states in the path of the storms also showed declines, (though not to the extent of Illinois) indicating that IC filings may have been impacted by weather. Will know more with the next DOL release on Thursday, February 11.]
Total State and PUA ICs
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It is quite clear that severe damage has been done to the labor market. The chart and table showing the number of people receiving some kind of unemployment assistance remains near 18 million. The first bar in the chart (left hand side) is the data for March 14, 2020 – call that the pre-virus “normal.” That number is 2.1 million. The downward slope from mid-October to mid-January, implies that it will be February 2022 before we reach the pre-pandemic level.
Total All Unemployment Claims
Universal Value Advisors
But wait! America’s businesses have figured out how to substitute technology for physical bodies. In 2020, productivity measures show a rise of 4%. This is a productivity growth rate we haven’t seen for nearly a decade. Thus, the February 2022 date mentioned above is likely nothing more than a number in my calculator! Because of the damage done by the pandemic to the labor market (automation, labor force drop-outs, permanent job losses…) a return to the robust labor market of 2019 may be years away!
Inflation
The passage of the $1.9 trillion “stimulus” package by Congress will likely add to the GDP, but the addition will be nowhere near the $1.9 trillion increase in debt. Still a possibility in the legislation is a timed step ladder to a $15/hour minimum wage. This will only accelerate the move by businesses to automate. The businesses that pay minimum wages are those in the struggling Leisure/Hospitality and Retail sectors. Expect more “permanent” job losses there as a result. While markets are worried about inflationary impacts from such increases, inflation from this source isn’t a real threat.
The “stimulus” does provide significant support for state and local governments, and those governments began rehiring (mainly school districts) perhaps in anticipation of such. Then, of course, there is the $1,400 checks for many American household members. The last two times we had “helicopter” money, early in the pandemic and then this past December, funny events occurred in the equity markets (the rise in the stock price of bankrupt Hertz last May, and of course, the recent GameStop
GME
rise and fall as many members of Gen Z and Gen Y, raised with videogames, appear to view the equity markets in that vein). We may well get another bout of such irrationality with the next drop of free money!
As an aside, “Helicopter Money” was a concept I laughed at when Ben Bernanke re-introduced this Milton Freidman notion in a November 2002 presentation to the Washington D.C. National Economists Club. At that time, he was a member of the Board of Governors of the Fed. But it is a reality in today’s topsy-turvy world. A continuation of such money drops has two implications: 1) each successive dose has a weaker and weaker impact on the economy because the populous saves more in anticipation of paying higher taxes (an economic concept known as Richardian Equivalence), and 2) massive debt increases weaken the dollar and risk its “reserve currency” status. This is a big deal because most international trade is done in dollars causing high demand for the currency. A loss of “reserve currency” status would weaken the dollar and be highly inflationary as the cost of imports and many foreign sourced raw materials would skyrocket. “Reserve currency” status, while not currently pressing, could become an issue if dollars really do grow on trees.
There has been a spike in interest rates in 2021. The 10-Year U.S. Treasury Note yielded 0.93% on January 4 and that yield was 0.56% at the end of last July. On Friday, February 5, the yield had spiked to 1.17%. Market participants are clearly worried about inflation. They are concerned about the enormous increases in debt, not only by governments, but also by the corporate sector.
In my past few blogs, I have argued that consumer inflation, in the classic sense of a rise in the Consumer Price Index (CPI), is nowhere in sight. The pent-up demand narrative makes no sense when the pent-up items (services like restaurants, airlines…) represent a small percentage of consumption and even a smaller percentage of GDP. In addition, we are currently seeing pent-down demand in “stay at home” items (appliances, home improvement…) which will only accelerate when the pandemic is over. The CPI is much more sensitive to rents, tuition, and medical costs which make up 45% of the index and are currently deflating.
Like recent market phenomena (Hertz, GameStop), a temporary untethering of markets from economic reality can occur, and this can persist for long periods of time. Interest rates can certainly rise from here, and they are likely to do so as long as inflation remains a worry. But when the inflation indexes don’t respond and reality sets in, interest rates will retreat. Remember, the Fed has already committed to keeping rates where they are for several years.
Things to Ponder
The worst stocks, from a fundamental point of view, significantly outperformed the overall market in January.
More “Helicopter Money” will hit most Americans’ checking accounts in the next several weeks. Money really does grow on trees in Washington D.C.
SPACs (Special Purpose Acquisition Companies) raised $83 billion in 2020, six times more than in 2019. These companies have no specific purpose except a promise (“hope”) that they will do something with the money thrown at them that will produce a return for the investor. Only “old-fashioned” people want to know what their money will be used for!
Over the past year, Bitcoin’s price has risen 600%, and Tesla’s
TSLA
by 800%. Gold is only up 13% and silver 49%. I am told by Gens Y and Z that gold and silver are out of date, and that Bitcoin is the new store of value. Personally, I’m a big skeptic.
Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.
Here’s a timeline of key events in the bread price-fixing case.
Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.
Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.
Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.
Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).
Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.
June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.
Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”
Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.
July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.
Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.
This report by The Canadian Press was first published Sept. 19, 2024.
Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.
Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.
The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.
“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.
“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”
Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.
The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.
The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.
Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.
More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.
Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.
“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.
Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.
“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.
Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.
Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.
Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”
“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.
This report by The Canadian Press was first published Sept. 18, 2024.
