Paying More and Getting Less

After some weeks of decline, investors had had enough and decided to come back. Despite all the seemingly negative news regarding supply chains and lack of workers, or perhaps exactly because of this news, some now believe the Federal Reserve will take a more cautious approach to removing monetary stimulus. Some going so far as to suggest the Fed will delay its taper program until after the first of the year. While I am not quite as sanguine, I will take good news where I find it. The markets rebounded nicely this week bringing the Dow Jones Industrial Average back above 35,000, last seen in early September.Aside from the usual stories, there isn’t much else going on at the moment. The reconciliation bill has gone dark, earnings announcements have yet to begin in earnest, and quite frankly everyone is tired of hearing about COVID. That is to say, in the absence of news, the markets want to go higher. That is good news in that investors appear to be optimistic that many of the issues currently facing the economy are temporary in nature. That’ not to say that volatility won’t persist. I fully expect November and December to be quite a bumpy ride as many of the issue that aren’t being discussed right not will come to a head. I look forward to getting past these near-term issues so we can once more focus on the big picture.Last week I titled this piece, “The Case of the Disappearing Workforce” hoping that some of you might pick up on the Agatha Christie vibe. The Wall Street Journal summarizes it best in saying, “Scarce labor is becoming a fixture of the U.S. economy, reshaping the workforce and prodding firms to adapt by raising wages, reinventing services, and investing in automation.” Analysts are starting to call this the Great Resignation. Here are some of the numbers:

2.9 percent – the share of the nation’s workforce that quit in August
4.8 percent – the U.S. unemployment rate in September, a pandemic low
293,000 – jobless claims last week, pandemic low
309,000 – women 20 and older who dropped out of the workforce in September
182,000 – men who were added to the workforce in September
10.4 million – unfilled U.S. jobs (Labor Department)
51 percent - business owners who said they have job openings they can’t fill
61.6 percent – labor force participation rate in September, versus 63.3 percent February 2020
40 percent – share of 4.3 million people who quit in August from restaurant and hotel jobs

In company news, many banks reported earnings this week, including JP Morgan, Citibank, Bank of America, and Wells Fargo. They all beat handily on both the top and bottom lines, although if one were looking closely they’d see that these companies lowered their reserves for loan losses in the billions of dollars. That accounts for virtually all the bottom line growth, although the markets liked it enough to reward these companies handsomely this week. Apple announced unexpectedly, it plans on cutting iPhone production due to chip shortages. This should highlight the issue. Apple, as large and influential as it is, is at the front of the line. If it can’t get the chips it needs, this suggests everyone else is in worse shape. And lastly, we’ve learned recently that companies such as Walmart, Home Depot, and Costco are chartering private cargo ships to ensure they can stock the shelves for holiday shoppers. Amazon is taking it one step further by looking for long-range cargo jets that would allow the company to directly transport good from China and other countries across the ocean. The largest companies with the deepest pockets stand to have an advantage in this environment. In closing I want to bring to your attention something I mentioned some months ago. The U.S. Postal Service (USPS) has been running large deficits for as long as I can remember. Several months back, Postmaster Louis DeJoy had proposed slowing first-class mail delivery as a solution to cut costs. No longer a proposal, this went into effect on October 1st. The three-day delivery standard for first-class mail had been changed to five days. You should now expect that letters and other mail could take up to five days to reach their destinations. Now you know.Bruce J. Mason, MBA