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The Case of the Disappearing Work Force

The markets regained some ground this week as a short-term resolution was found for the looming debt ceiling deadline.  The angst that was beginning to build, let off like a head of steam off a boiling kettle.  While they only kicked the can down the road for another two months, it does give those on Capitol Hill some breathing room to negotiate further and strike a compromise.  We are optimistic they will wait until the new deadline to reach an agreement.

The big news this week, and perhaps the most vexing, was the jobs report that was released today.  Economists had expected the economy to have added 500,000 jobs in September.  You might remember back in June and July the economy added 962K and 1.1M jobs respectively.  However, August saw a substantial retreat to only 366K jobs which suggested the resurgence of COVID had stalled the job market.  Analysts were quick to reassure that this was an anomaly and a return to growth was a given in September which leads us to today announcement of only 194,000 jobs added.  This is perplexing because the extended unemployment benefits and moratorium on evictions had expired which should have led to a surge.  Instead, the labor force participation rate dropped at the same time the unemployment rate fell to 4.8% from 5.2%.  The numbers just don’t add up.  Fewer people taking jobs, fewer people looking for jobs, and yet a lower unemployment rate?  Some speculate that the delta variant of COVID continued to hamper employers, while others suggest it is a dearth of daycare providers which is to blame.  Ultimately, this could have an impact on the timing of the Federal Reserve’s taper program which was set to be announced next month and begin in December.  One more month like this and the Fed may be forced to delay tightening monetary policy.

Aside from supply-chain issues which I belabored last week, crude oil topped $80 per barrel for the first time in seven years.  This can partially be attributed to OPEC holding steady on its production level.  Many had hoped they would increase production in the face of a recovering global economy.  However, it recently met and decided to stick with its plan to increase production only modestly.  The bigger picture tells the rest of the story.  There are realistic fears that there could be an energy shortage not seen in decades.  India has warned it has only four days of coal reserves left.  German power plants are running out of fuel and China just unloaded an Australian shipment of coal despite an import ban and icy relations.  Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transportation bottlenecks are adding to the pressure.  Production in the U.S. is down 6.7% over last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off 15% compared to 2020.  All of this adds up to higher energy prices and in particular, crude oil prices.  Analysts are expecting oil to hit $90-100 per barrel in the next few months if something doesn’t give.

So much happens each week which I don’t talk about.  I try to keep this weekly commentary short and as on point as possible, but there is just so much that I wish I could share.  For example, the U.S. Fish & Wildlife Service is about to name the Tiehm buckwheat flower as endangered, thereby preventing the building of a lithium mine in Nevada for the purpose of EV batteries.  Insider trading at the Federal Reserve?  Maybe if reports are to be believed.  A trillion-dollar platinum coin to avert the debt ceiling deadline.  Sure!  A container ship’s anchor accidentally breaking an oil pipeline off the coast of California due to the port issues we’ve discussed.  Yep.  NFT (non-fungible tokens) sales surging eightfold to $10.7B in the third quarter alone.  Hmm.  American Express Platinum credit card adding the benefit of a Walmart monthly membership.  The credit card has an annual fee of $695.  Okay?  And lastly, Ireland grudgingly agrees to a global minimum tax of 15% on corporations.  Finally, progress.

In closing, I bring you the latest from the Internal Revenue Service (IRS).  Charles Rettig, commissioner of the IRS, wants banks to report annual cash flows for ordinary account holders.  Treasury Secretary Janet Yellen is promoting the plan, and the House Ways and Means Committee is debating whether to include this mandate in the Democrat’s $3.5 trillion spending bill.  The goal would be to presumably catch those who avoid paying income tax due to dealing mostly in cash.  More specifically, it would reportedly help to catch wealthy tax dodgers.  However, the plan is to review every account above a $600 balance, or with more than $600 dollars of transactions in a year.  That hardly constitutes wealthy in my book.  It also opens a veritable Pandora’s box of privacy issues which can’t easily be glossed over.  Now you know.

Bruce J. Mason, MBA