How the Jobs Report Will Change Thinking in Washington

THIS MORNING’S JOBS REPORT, due at 8:30 ET, should intensify the national debate over labor shortages, which have been fueled by generous unemployment benefits from Washington.

IT’S LIKELY THAT THE JOBLESS RATE will fall below 6%, but the headline this weekend may be that 1 million jobs were added in April as the post-pandemic economy sizzles.

REGARDLESS OF THE EXACT NUMBERS at 8:30, an over-heating economy is now a serious threat, even prompting Janet Yellen to speculate about a pre-emptive Fed strike to cool it off.

WE HAVE WARNED SINCE WINTER about the “shortage economy,” which is now obvious everywhere — semiconductor chips, lumber, gasoline, copper, rental cars, etc. But nowhere is it more apparent than labor, where shortages are widespread.

THE POLICY IMPLICATIONS: These shortages will ignite inflation, at least for a few months, perhaps longer. The inevitable reaction in Washington will be whether politicians have over-done the economic medicine.

A MAJOR SENTIMENT SHIFT ON CAPITOL HILL is now underway; lawmakers are hearing from constituents about the shortages, and there’s scant support for any further stimulus checks or unemployment benefits. In fact, there’s a growing sense that the unemployment checks shouldn’t have been locked in through early fall.

VIRTUALLY EVERY REPUBLICAN IN CONGRESS, along with a handful of Democrats, are openly questioning whether more stimulus is required. There’s solid support for repairs to highways, bridges, dams, water infrastructure, etc., but President Biden’s request for $4 trillion in new spending has no chance of enactment.

WE CONTINUE TO BELIEVE there will be a vigorous debate by year-end over what constitutes full employment; the jobless rate could fall to 5% or lower by Christmas.

POLITICS THEN ENTERS THE PICTURE: A labor shortage and percolating inflation could produce this irony for President Biden as the 2022 elections approach — instead of getting credit for a strong economy, he could get blamed for gasoline shortages and an inflation surge that makes housing far less affordable.

THE BIG ECONOMIC THEME THIS SPRING is that Washington is over-doing the medicine, and that theme will persist this summer. Biden got $1.9 trillion in covid relief spending a few weeks ago, but the rest of his agenda faces a significant haircut.

Related: Republicans Are Favored to Take the House in 2022

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.