NFP,stimulusbillandrisingoil

It was an important news filled weekend. It started with the NFP data on Friday then we saw the passing of 1.9 trillion USD stimulus in the US Senate and then finally news of rising tensions in the Middle East with strikes on oil facilities resulted in a jump in crude prices. Now let’s tackle all these news items one by one and try to cloak them in the wider context. In Robert Shiller’s words, let’s try to weave them in a coherent narrative.

NFP data came better than expected. 10 days back in his testimony to Congress the Fed Chief had said about the full employment as one of the two core objectives of the central bank. He had reiterated that they are not looking at some numerical objective to achieve on the employment front but would like to see a broad-based recovery. The 41-page report published by the BLS (Bureau of Labour Studies) in the US gives a detailed insight on the employment status of the US economy differentiated across different genders, ethnicities and work experience. Reading the full report gives a complete picture which the headline number like NFP additions, unemployment rate etc fail to convey sometimes.

The unemployment rate for the month of February 2021 stands at 6.2%. Now readers can see that as it is a percentage, it depends on how we define the unemployed (numerator) as well as the total labour force (denominator). The labour force is made up of people who are “actively” looking for jobs. Actively is the operative word here. Someone who has stopped looking for job because of a variety of reasons in the last few weeks just drops out of the labour force and then his/her fate doesn’t get reflected in the unemployment number. As more people drop out of the jobs race the number can keep looking good while the reality is different. This is the same phenomenon which the Fed chief was alluding to in his testimony.

Now to the stimulus bill. The main discussion was on the unemployment benefits where the two sides debated that increasing the benefit or the duration, discourages people from actively seeking employment making them dependent on government support. Still the final call was predicated on a belief that a pandemic ravaged economy which is still struggling to open requires support. Now all this new money given to the public is not earned through taxes but has been created out of fiat, this is deemed inflationary (rising yields). Finally, inflation is not just because of more money availability (Dollar printing). It can also be because of supply shocks (oil, tension in the Middle East). In the 1970’s after the first oil shock the inflation in the US went into double digits which required the then Fed chief Paul Volcker to raise interest rates. Employment to money supply, money supply to inflation, inflation to geopolitical tension, the narrative is complete. However, readers are free to debate the forecasting efficacy of the same.

In the market roundup, US Yields are up, Dollar Index is up, Oil is up. Emerging market currencies are a bit down and stock markets are a bit ambivalent. Indian bond yields 10 year are trading at 6.22. On Friday during the weekly auction the 10-year paper saw the devolvement of 11k Cr INR on PDs.