EMPLOYMENT/UNEMPLOYMENT
The jobless rate unexpectedly dropped to 8.2 percent in March, a three-year low, last week’s Labor Department report showed, largely due to people leaving the labor force. The participation rate, the share of working-age men and women with jobs or seeking employment, fell to 63.8 percent from 63.9 percent in February. It doesn’t take a rocket scientist to figure out that it would be a whole lot better if the unemployment rate were decreasing because more people were finding jobs than because more people were giving up on looking for jobs.
It is hoped that the March setback in hiring will prove temporary as the U.S. economy, in its third year of expansion, now is better equipped to overcome a slowdown in Europe and rising fuel costs. Well, that’s A theory anyway.
The smaller-than-forecast payroll figures sure seem to reinforce Federal Reserve Chairman Ben S. Bernanke’s repeated cautions that gains might slow as companies adjust their staffs for a period of moderate growth.
This year, the economy is rebounding, with growth expected to be at 2.2 percent according to the median estimate of 70 economists surveyed by Bloomberg from March 9 to March 13, compared with 1.7 percent last year. The improvement means Fed policy makers can sit back and wait for the monetary stimulus already in the pipeline to work, without having to do another round of asset purchases.
It really appears QE3 is off the table.
TREASURIES
Investors are plowing into Treasuries at a record pace as the supply of the world’s safest securities dwindles. Unless something changes, this sure seems to ensure yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment.
Short-maturity debt the Treasury sold at the height of the 2008 financial crisis to stabilize markets is coming off the market, generating more cash needing to be put to work even as
Treasury new issuance remains steady at recent volume. The net supply of Treasuries, or gross issuance minus the amount of maturing debt, will fall by an average of $32.5 billion a month this year, to $77.3 billion, which will leave an average of $99.4 billion of investable cash a month from maturing debt, up from $68.1 billion in 2011.
That’s a lot of cash looking for a place to park.
FOOD CHAIN INFLATION
U.S. corn stockpiles are poised to be the smallest in 16 years by August and soybean reserves will be lower than the government expected, potentially accelerating food-price inflation in an election year.
The government is already predicting food inflation of 2.5 percent to 3.5 percent in 2012. While that’s down from 3.7 percent in 2011, it would be higher than gains in as many as five of the past eight years.
Corn prices averaged $6.405 a bushel on the Chicago Board of Trade in the first quarter, 2.8 percent more than in the previous three months and the fifth-highest in data going back
more than a half century. U.S. corn reserves relative to usage may fall to the lowest ever this year.
Cattle futures in Chicago reached a record $1.315 a pound on Feb. 22, partly because high corn-feed costs prompted farmers to shrink herds. Retail prices of pork chops and beef were close to all-time highs in February, government data show.
Current supplies are tight, herds & acreage planted are not appreciably higher, and that means any improvement in inventories are highly weather dependent.
CHINA
China’s consumer prices rose 3.6 percent in March from a year earlier, the government said. That compared with the 3.4 percent median estimate in a Bloomberg survey of economists and a 3.2 percent gain the previous month. So clearly inflation is building in China.
This trend probably delays any reserve requirement action by the Chinese government.
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