Do We Really Need More Stimulus?

Stocks opened slightly higher today (Dow +95 pts; SPX +.3%). Most groups are higher in early trading, except for pharmaceuticals, internet/telecom, and semiconductors. Small-caps are up about .75%, beating large-caps for a change. US markets are ahead of most foreign markets. Emerging markets are down, continuing to underperform as they have for the past seven months. Commodities are mixed. WTI crude continues to march upward, now above $80/barrel for the first time since October 2014. We’re told there is a global energy shortage. Copper is down .5% today but has behaved decently this month. The bond market is bouncing back, sending yields a bit lower. Long-term Treasuries are up nearly 1%, and that comes as a surprise to me, especially given Federal Reserve Vice Chair Richard Clarida’s assertion that it’s time to pull back on monetary stimulus. That should mean higher bond yields in the future. “I myself believe that the ‘substantial further progress’ standard has more than been met with regard to our price-stability mandate and has all but been met with regard to our employment mandate.” Mr. Clarida refers here to the Fed’s two jobs, controlling inflation and ensuring full employment. And in his view, economic recovery has been strong and sustainable enough that further stimulus is unnecessary. Although other Fed officials have noted some slack in the labor market, for the life of me I can’t figure out what that slack is. And the Fed’s preferred inflation gauge is above 4% whereas the stated long-term target is 2%.

Total US job openings (about 10.4 million) declined a little in August, but are hovering near record highs. So for every unemployed American, there are 1.2 job openings. About 51% of small business owners say they have positions they can’t fill. Meanwhile, the job quit rate rose to a record high 2.9%. Coming out of the Covid Crisis, Corporate America is competing with government stimulus for workers. The labor force participation rate remains depressed because some don’t feel compelled to work—or perhaps don’t want to settle for lower-paying jobs. The data tell us that few are financially strapped. Personal savings rates and levels are very high, home prices and retirement accounts are way up, and everyone knows that wages are rising. Companies are ratcheting up pay and benefits—like college tuition if you work for Target—and this encourages job-switching.

The House of Representatives will vote today on whether to “temporarily” raise the federal debt limit through early December. The same measure passed in the Senate last week. This step is necessary to avoid an immediate government shutdown, and is precursory to considering any government spending initiatives. And by that I mean the Democrats’ $3.5 trillion stimulus bill. House Speaker Pelosi is coming to grips with reality, which is that the president’s plan is too costly, too ambitious, and too much for moderate Dems. “Overwhelmingly, the guidance I am receiving from members is to do fewer things well so that we can still have a transformative impact on families in the workplace and responsibly address the climate crisis.”