The Mysterious Two-Month Cycle
The markets continued sideways this week due to uncertainty regarding the Delta variant. The most recent economic data suggests the economy hit a mild bump in August as the number of COVID cases increased. The impact was felt most acutely in the travel, i.e. airlines and cruise lines, and restaurant industries. Adding to recent pressures is Hurricane Ida, which shut down 90% of the Gulf’s oil and gas production leading to higher prices at the pump. All said, investors remain in a holding pattern while waiting for the next catalyst to appear.
The big news this week was the August Jobs Report which came in decidedly lower than expected. Analysts had estimated the addition of 750,000 jobs in August but were disappointed when the Nonfarm payrolls report indicated only 235,000 were created. As a side note, this could have the effect of delaying the Federal Reserve’s upcoming plan to end its bond buying program, aka “the taper.” To a large extent we can blame the Delta variant for this miss. However, with pandemic relief at an end, in-school learning back in session, and the moratorium on evictions over, it is likely we’ll see these numbers pick back up in September. We still anticipate that the rise in COVID infections should peak or have peaked and begin declining in the next month or two. In fact, I read a fascinating article in the NY Times this week indicating that each variant has had a cycle lasting approximately two months. Researchers do not know why this seems to be the case but are studying the pattern closely.
Since this week’s big news was about jobs, let’s talk about the other big elephant in the room. Wages have been on the rise and show continued upward pressure considering the dearth of people looking for work. Walmart plans to hire 20,000 “supply chain associates” to help keep merchandise moving. It also announced it will give 565,000 employees a dollar increase, bringing the starting hourly wage to $16.40. However, the average wage for existing supply chain associates will be $20.37 per hour. Amazon announced it will be looking to hire 55,000 employees in coming months for corporate and technology jobs. The hires would represent a 20% increase to Amazon’s current headcount of 275,000. And not to be outdone, PNC Bank announces its minimum pay will increase to $18 per hour while Walgreens will raise its starting wage to $15 per hour. Much like the housing market and house prices, the scarcity of employees is driving wages through the roof.
In company news, Apple is making waves again. While I don’t often comment on rumors, the upcoming Apple Watch Series 7 is thought to include a bevy of new healthcare features including body temperature measurement for fertility planning and an alert for increased blood pressure. According to the Wall Street Journal, the new watch will include sleep apnea detection, the ability to identify diabetes, and guidance in cases of low blood oxygen. I will just say, when do these features go from being tremendous innovations, to becoming intrusive data collecting tools? Additionally, both Arizona and Georgia will be the first U.S. states to allow drivers to store their licenses within the Apple Wallet app. Apparently, Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah are next in line for the feature. As for the new Apple Watch, it will likely debut later this month and has grown to be Apple’s third largest revenue segment at almost $9 billion per quarter.
In closing I think we can all breath a big sigh of relief that 18 months into the pandemic, we’re closer to the end than the beginning. Last year was a difficult one for so many reasons. Among the many outcomes in 2020 is that most Americans paid no federal income tax last year and will similarly pay no income tax this year. According to the Brookings Tax Policy Center, 107 million households, or about 61%, owed no income tax last year compared to 44% in 2019. The high number of nontaxpayers is sure to fuel debate in Congress over higher taxes on the wealthy. The top 20% of taxpayers paid 78% of federal income taxes in 2020, up from 68% in 2019. The top 1% paid 28% of taxes in 2020. For too many decades and for too many people, wages have been stagnant. I am hopeful that as the trend in higher wages this year takes hold, those at the bottom of the income ladder can find some footing and begin to participate in not just the benefits of society but also in its responsibilities. Now you know.
Bruce J. Mason, MBA