A Jolly Jobs Report, Tanking Tech, Meta's Malaise...
PLUS: This Week's Featured Place: Maui, Hawaii
Issue 54: February 7, 2022
Inside this Issue:
Shock from the BLS: More Jobs in Jan., Not Less
Big Tech Wreck? Not Quite, But Traces of Trouble
InstaGrim: Investors Suddenly Sour on Meta
Chips Ahoy: GM Sees Semicon Salvation
Parcel Power: Another Strong Quarter for UPS
Brain Gain: Immigration Trends in the 2010s
Harm on the Farm? No More Federal Ag Bounty
Reconstruction: The U.S. Economy After the Civil War
And this Week’s Featured Place: Maui, Hawaii, Pricey Paradise
Quote of the Week
“In terms of current trends, the first week of January, I’m like, where are the customers? Everybody seemed to be at home because of omicron. But the business has come back roaring.”
- UPS CEO Carol Tome
Well, nobody expected that. The U.S. economy created 467,000 new jobs in January, according to the Bureau of Labor Statistics, a far cry from the job losses many feared. Just two days prior, a report from the payroll firm ADP showed the economy losing 301,000 private sector jobs in January, 91% of them in the service sector. Other clues and data points were likewise suggestive of a job market stalled—if only temporarily—by omicron’s impact. Companies, after all, experienced waves of employee sickouts. Consumers, meanwhile, pulled back on restaurant dining, airplane trips and other in-person activities.
Sure enough, the January jobs report showed a spike in people “unable to work because their employer closed or lost business due to the pandemic.” That surely took a toll on output. But employers apparently responded by hiring aggressively. This was even true for restaurants and bars, which added 108,000 new jobs last month—that’s 23% of all the jobs created. Other areas showing big gains were professional services, retail and—no surprise here given supply chain bottlenecks— transportation and warehousing.
The January jobs report was in fact bullish beyond that headline 467,000 number. It also presented a much more robust November and December than first reported—the original numbers undercounted by a hearty 709,000 new jobs. January’s labor force participation rate inched up to 62.2%, from 61.9% in December (the biggest jump was among Black Americans). Average annual earnings rose 5.7% y/y, less than inflation, yes—but not that much less: December’s PCE reading was 5.8%.
The labor market thus appears well positioned, reinforcing the Fed’s inclination to raise interest rates starting in March. Some analysts are pointing to statistical quirks that perhaps make the BLS job numbers sound better than they really are (one such expert is Joseph Politano of the BLS itself). And to be clear, the number of Americans currently employed is still between 1% and 2% lower than it was just before the Covid crisis started. But getting that fully back is not the Fed’s top priority anymore. Job number one right now is quelling inflation.
Positive vibes in the labor market are a welcome counterpoint to other more worrying trends. Oil prices topped $90 a barrel last week, pressuring households and businesses alike. Stocks are still down this year despite last week’s gains. Borrowing costs are rising in anticipation of Fed tightening. A fiscal retreat is simultaneously underway (child tax credits stopped coming last month, emergency farm subsidies are ending, etc.). Even Corporate America is starting to telegraph hints of distress. PayPal, for one, flagged weakness in e-commerce during the holiday season. “The impact of omicron and the effect of inflationary prices,” it said, “combined with lack of stimulus, is having an impact on spending.”
Even Big Tech is showing cracks in its armor. Earnings for the Silicon Valley/Seattle Big Five, make no mistake, were again mesmerizingly strong—their collective operating profit exceeded $100b for just the fourth quarter. $100b! No less impressive was the Big Five’s y/y revenue growth. Yet the appetite for tech stocks has waned this winter, in Meta’s case dramatically so. Last week, the House of Zuckerberg spooked investors with talk about declining Facebook users, setbacks from Apple’s App Store changes, audaciously large investments in the ill-defined metaverse and tough competition from TikTok. Concerns are less acute for the other four, but all face their own set of challenges, not least a growing bipartisan push for greater regulation and stronger antitrust enforcement. Apple faces mounting China uncertainties and Amazon major cost and labor supply challenges. Alphabet, like Meta, remains largely a one-trick pony with its online advertising dependence, however monstrously lucrative (don’t look now but as the “TechMeme Ride Home” podcast noted, YouTube alone is now larger by revenues than Netflix). Microsoft is perhaps best positioned with its strength in areas ranging from cloud computing to video games to its old staple office software. It’s less controversial these days as well. But will regulators approve its Activation deal?
Big Tech continues to deliver products that people want and technologies that make the entire American economy more productive. The Big Five invest heavily in research and development. They collectively employ more than 2m people. And their influence extends even to the stock market, where they’ve at times last year accounted for close to 25% of the entire S&P500 index. That has big implications for American retirement savings—as Big Tech goes, so goes the fate of many pensions.
Ten-year Treasury yields jumped last week as the rosy job report made Fed hikes all the more likely. Crypto prices started to rebound. General Motors calmed nerves about the semicon shortage. Pulte, a major homebuilder, dismissed concerns about housing demand, even in the face of rising mortgage rates. “The strong demand experienced in the fourth quarter has continued into January,” it said, “with no signs that higher interest rates are impacting the desire for new homes.” It did of course temper its bullishness with tales of frustrations finding lots, labor and materials.
Such supply side shortcomings have sent housing prices to the moon, with rents on the rise as well. Just think for a moment: What if the price of housing had fallen sharply over the past few decades, like televisions and computers? For better or for worse, you can’t outsource homebuilding to China, like you can TV production. And no one ever says: Don’t build TVs in my backyard. But can you introduce technology that meaningfully lowers the cost of construction? Nobody—not even the great brains of the Big Tech Big Five—has figured out a way yet.
Maybe they will one day. For now, the Fed needs to figure out how to guide an economy with so many conflicting signals. Job market good, housing good, corporate profits good (if thinning a bit), household balance sheets good, banks healthy, capital investments rising, semicon shortage improving, omicron fading, inventories building, summer travel bookings strong… BUT oil prices and mortgage rates up, fiscal and monetary drag, weak consumer confidence, geopolitical tensions, Covid’s impact on Chinese suppliers, a wavering stock market, burning inflation… is the U.S. poised for a healthy 2022 or not?
UPS: In one of the heaviest weeks of the quarter for corporate financial reporting, Atlanta’s UPS stood out with its highest quarterly operating profit in company history. Stated simply, demand for moving parcels and packages greatly… (TO CONTINUE READING, VISIT www.econweekly.biz)
General Motors: It’s the question everyone was waiting to ask: Is GM seeing any relief from the great semicon shortage? Its answer was encouragingly yes. Said CEO Mary Barra: “We saw improved semiconductor availability in the fourth quarter compared to the third quarter… And we expect ongoing semiconductor availability improvements throughout 2022… We really see with the plans we have in place now, by the time we get to third and fourth quarter, we’re going to be really starting to see the semiconductor constraints diminish.” The company… (TO CONTINUE READING, VISIT www.econweekly.biz)
Tweet of the Week
Housing: Bill McBride, author of the housing blog Calculated Risk, says today’s market is nothing like the credit-driven bubble of the mid-2000s. Appearing on the “Top-of-Mind” podcast, McBride did highlight one area of potential housing vulnerability in 2022. Investors now account for roughly 20% to 25% of all single-family home buyers, taking advantage of cheap debt. These are not just institutional investors like Wall Street’s Blackstone… (TO CONTINUE READING, VISIT www.econweekly.biz)
Labor: Giovanni Peri of UC Davis shares some overlooked facts about how immigration changed in the 2010s. In 2020, of the 37m foreign-born working-age people in the U.S., 31% had a college degree. That’s roughly similar to the figure for all U.S. adults. But now look just at immigrants who arrived during the past decade. This subset of foreign-born workers has a much greater level of schooling, with 47% holding a bachelor’s degree or higher. Mexicans remain the largest group of foreign-born workers in the U.S., accounting for about a quarter of all immigrants. But Peri, speaking on the “Econ Facts” podcast, says the 2010s saw much faster growth in arrivals from Asia, most importantly China, India and the Philippines. Arrivals grew sharply from Central America and Africa as well but their numbers remain small in absolute terms. It’s not just that an abnormally large portion of newer arrivals is highly educated. It’s also that many are employed in science, technology, engineering and math (the so-called STEM professions). No surprise, therefore, that studies at the Global Migration Center (GMC), which Peri founded, saw a correlation between where most foreigners are settling, and which economies are performing best—think dynamic large metros like Seattle, Houston and New York. Another finding: That the presence of highly educated foreign workers in an area is correlated with wage gains for native born Americans in that area. Peri acknowledges that immigration (along with automation and offshoring) might have depressed wages for native born Americans in earlier eras. But that certainly wasn’t the case in the 2010s. The 2010s are of course finished now. What about the 2020s? Peri estimates that the U.S. has about 2m fewer foreign workers than it would have had were it not for Covid, which essentially closed the country’s borders. Tighter immigration laws implemented pre-Covid have reduced new arrivals as well. Today, as labor shortages plague the economy, GMC studies found that the worst hit industries tend to be those with the highest reliance on foreign workers, i.e., food preparation and hospitality.
Farm subsidies: It’s a good time to be a farmer. Or it was in 2021, anyway. Net farm income, according to Paul Mitchell, a University of Wisconsin professor specializing… (TO CONTINUE READING, VISIT www.econweekly.biz)
Maui, Hawaii: Golden beaches, bright blue waters and lush green hills. Everyday sunshine too. Are there any places on earth more inviting than the island of Maui? To visitors, maybe not. To those in search of economic opportunity, however, Maui is a distant way from paradise. It was only in 1959 that Hawaii became a U.S. state, with its capital in Honolulu, a metro area that today has nearly 1m residents. There, national defense plays an outsized role in the economy, perhaps more so than even tourism. According to the state’s Department of Business, Economic Development and Tourism (DBEDT), Washington’s $7.7b worth of annual defense spending in Hawaii accounts for nearly 9% of the state’s GDP. Honolulu alone has nine military installations, the largest and most famous being Joint Base Pearl Harbor. Including civilian personnel, these installations employ roughly 65,000 people. But little of this spending touches Maui, Hawaii’s third most populous island with about 120,000 residents, most living in and around the main town of Kahului. In the 19th century, people came to Maui from as far away as New England, engaged in whaling, logging or trade with Asia. Some came… (TO CONTINUE READING, VISIT www.econweekly.biz)
Imperial County, California: The Salton Sea… (TO CONTINUE READING, VISIT www.econweekly.biz)
Reconstruction: The Civil War brought great changes to the U.S. economy during the first half of the 1860s. Changes no less profound sprung from the war’s aftermath, a turbulent time historians call the Reconstruction era. In his 1988 history, “Reconstruction: America’s Unfinished Revolution,” Eric Foner details the key changes, not just in the defeated South but also in the victorious North:
The war itself triggered surging demand for railroads, textiles, meatpackers and farmers, satisfying the Union army’s need to transport, clothe and feed its soldiers. After the war, the iron age gave way to the steel age, facilitating a shift from goods mostly produced mostly by craftsmen to goods mass produced by wage laborers in factories. Industries consolidated—the first major monopoly was Western Union telegraph. Industrialists like Carnegie and Rockefeller commanded more economic influence as they once and for all earned enough money to pay off debts to merchant bankers.
By 1873, Foner writes, U.S. industrial production was 75% above its 1865 level, even as the southern economy stagnated. During the Reconstruction era, 3m immigrants… (TO CONTINUE READING, VISIT www.econweekly.biz)
Health Care’s future is the topic of a new episode of Azeem Azhar's “Exponential View” podcast. Azhar talks with Jonathan Wolf, CEO of ZOE, a company that offers nutritional advice tailored to an individual’s unique health profile… (TO CONTINUE READING, VISIT www.econweekly.biz)
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