News: Why a blowout jobs number would be bad for Biden

Tuesday, July 5, 2022

Why a blowout jobs number would be bad for Biden

Jul 05, 2022

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Welcome to jobs week — It's that time again. The June jobs report due out on Friday is expected to show a decline from May's very strong 390,000 to closer to 200,000, which would also be a solid number. Wall Street is looking for a "goldilocks" figure in the 200K-300K range to ease rising concerns about an imminent recession without spurring the Federal Reserve into bigger, faster rate hikes.

The number takes on added importance as economic data came in decidedly mixed last week. Inflation as measured by the Fed's favorite indicator, PCE, stayed steady on the headline at a 6.3 percent annual rate while core price increases excluding food and energy slowed to a 4.7 percent rate in May from 4.9 percent in April. But spending adjusted for inflation dipped 0.4 percent, a potentially worrisome sign about consumers' ability to keep up with an inflation rate still far above the Fed's long-term target of 2 percent.

Manufacturing also came in soft with the ISM report notching its biggest monthly decline since Covid hit, dropping to a two-year low of 53 percent. Anything above 50 means growth, but the latest reading was the worst since June of 2020. A surprisingly soft jobs on Friday number might boost markets by taking pressure off the Fed, but it would add to concern that recession is near.

Technically, it may already be here. The U.S. economy shrank by 1.6 percent in the first quarter, according to the latest revised data. And forecasts for the second quarter are for another, perhaps slightly larger, decline. That would meet one test for recession (two consecutive negative quarters).

But it's really up to the National Bureau of Economic Research to officially declare recessions. And the NBER wonks could pass on calling this a recession if the slide lasts for just two quarters because unemployment remains so low and wages are rising.

On the political front, Republicans would jump all over a weak reading to blast Democrats and the White House for "Bidenflation." Those attacks are resonating with a public that almost uniformly hates the current economy, largely because of inflation.

President Joe Biden and Democrats are also rooting for something not too far above the goldilocks range. Ordinarily, they'd cheer any big jobs number. But they don't want the Fed to feel forced to pump the brakes even harder.

Analysts tell MM they don't expect June to surprise much in either direction. "It's very straightforward," Pantheon Macroeconomics chief U.S. economist Ian Shepherdson said in an email. " Homebase data are pointing to about 200K private, so about 225K headline. …

"By normal standards 225K is pretty solid but everyone will get out their rulers and extrapolate to sub-100K by the end of summer, and maybe start asking whether another couple 75 [basis point] rate hikes are such a good idea. Spoiler alert, they're not."

Aaron Sojourner, a progressive economist at the W.E. Upjohn Institute for Employment Research and a former Obama administration official, emailed MM: "The biggest question is whether payroll growth continues to decelerate and how sharply. …

"Outside press releases from a few dozen crypto, tech, and real estate exposed firms, there's no evidence at this point of job change going negative … Are we seeing a soft landing by stabilizing prices with minimal disruption to the real economy?" Democrats would certainly hope so. But even Fed officials themselves are not sure they can land the plane so gently."

IT'S TUESDAY — Happy (belated) birthday, America! Hope you all had a terrific holiday weekend. We celebrated with the classics: burgers, popsicles and plenty of sparklers.

What's up this (short) week? Send us your tips, ideas and other feedback: kdavidson@politico.com, bwhite@politico.com, or find us on Twitter @katedavidson and @morningmoneyben.

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DRIVING THE WEEK

Factory orders data released at 8:30 a.m. … Job openings and quits data released Wednesday … Fed minutes released Wednesday … St. Louis Fed President Jim Bullard speaks Thursday … Fed Governor Chris Waller speaks at National Association for Business Economics conference Thursday … June jobs report released Friday.

NO MORE WHISPERS: RECESSION TALK SURGES — Our Victoria Guida: "President Joe Biden says 'there's nothing inevitable' about a recession in the U.S. He is an increasingly lonely voice about that prospect. From Wall Street to Washington, whispers about a coming economic slump have risen to nearly a roar as the Federal Reserve ramps up its battle against the highest inflation in four decades."

—Your MM host noted last month that it's unlikely we're in a recession already, given how many jobs employers have been adding each month and how much consumers and businesses are still spending.

But! WSJ's Jon Hilsenrath notes, if we are in one (that is, if the National Bureau of Economic Research determines at some point that a recession has already begun) it is a very strange downturn.

"Analysts sometimes talked about 'jobless recoveries' after past recessions, in which economic output rose but employers kept shedding workers. The first half of 2022 was the mirror image—a 'jobful' downturn, in which output fell and companies kept hiring. Whether it will spiral into a fuller and deeper recession isn't known, though a growing number of economists believe it will."

TAIWAN SEES U.S. TRADE DEAL AS VITAL TO DEMOCRACY — Our Doug Palmer: A top Taiwanese official said on Thursday that the biggest benefit from a proposed trade agreement with the United States would be to prop up Taiwan's economy and democracy in the face of China's attempts to isolate the country. 'If our economy can not be strong enough, then there's only one place that we can go — China,' John Deng, Taiwan's minister without portfolio, said in an interview. 'More reliance on their market. More dependent.'"

ICYMI: BIDEN PREPARES ACTION TO RESHAPE TRUMP'S CHINA TARIFFS — Our Gavin Bade: "President Joe Biden is preparing to alter some of former President Trump's tariffs on China , with a decision expected this month. The administration is likely to announce action to lift a narrow set of tariffs on Chinese imports this month, said three industry officials and former federal officials with knowledge of administration plans. A senior administration official, who spoke anonymously to discuss policy plans, said no final decision has been made on timing."

BIG BUSINESS FACES ABORTION BACKLASH — Our Eleanor Mueller: "Employers who say they will pay for workers to travel to pro-choice states for abortions now that Roe v. Wade has been overturned are likely to find themselves on the frontlines of the continuing battle over the procedure. Even before last week's Supreme Court ruling, GOP lawmakers who oppose abortion had spoken out against companies that preemptively rolled out the benefit."

WHITE HOUSE, BEZOS TRADE BARBS OVER GAS PRICES — Axios' Ivana Saric: "The White House Press Secretary Karine Jean-Pierre on Sunday responded to criticism from Jeff Bezos about President Biden's call for oil executives to reduce gas prices, saying high gas prices are emblematic of 'a market that is failing the American consumer.'"

ECB TO DISCUSS BLOCKING BANKS FROM MULTIBILLION-EURO WINDFALL — FT's Martin Arnold, Olaf Storbeck and Owen Walker: "The European Central Bank is looking at ways to stop banks earning billions of euros of extra profit from the ultra-cheap lending scheme it launched during the pandemic once it starts to raise interest rates later this month. The €2.2tn of subsidised loans provided by the ECB to banks helped to avert a credit crunch when the Covid-19 crisis hit. But with the central bank now planning to raise rates it is set to provide a bonanza of extra earnings worth up to €24bn for eurozone lenders, according to analysts."

Inflation Watch

INFLATION IS MAKING HOMELESSNESS WORSE — WaPo's Abha Bhattarai and Rachel Siegel: "The sheriffs arrived at 6 a.m. in early June to tell Josanne English what she already knew: She was being evicted . She'd lost her job as a project manager near Sacramento in April, then fell behind on rent as $6-a-gallon gas and higher costs for food and utilities depleted her monthly budget. By the time she lost her home two months later, she owed $9,160 in rent and late fees, and her bank account was nearing zero."

—Americans have had it with inflation, WSJ's Rina Torchinsky and Sarah Chaney Cambon report: "Many Americans, unable or unwilling to stomach the higher prices , are starting to forgo some purchases and outings."

INFLATION IS POSING 19 PROBLEMS FOR ONE CENTRAL BANK — NYT's Eshe Nelson: "For central bankers, the world has changed abruptly. After more than a decade of low inflation and interest rates, policymakers are now in an environment of high inflation , where there isn't time for ponderous decisions, only swift and decisive action. This was the verdict among policymakers and economists who gathered in a luxury golf resort northwest of Lisbon this week for the European Central Bank's annual forum."

FALLING COMMODITY PRICES RAISE HOPE INFLATION HAS PEAKED — WSJ's Ryan Dezember: "A slide in all manner of raw-materials prices—corn, wheat, copper and more—is stirring hopes that a significant source of inflationary pressure might be starting to ease."

"Natural-gas prices shot up more than 60% before falling back to close the quarter 3.9% lower. U.S. crude slipped from highs above $120 a barrel to end around $106. Wheat, corn and soybeans all wound up cheaper than they were at the end of March. Cotton unraveled, losing more than a third of its price since early May. Benchmark prices for building materials copper and lumber dropped 22% and 31%, respectively, while a basket of industrial metals that trade in London had its worst quarter since the 2008 financial crisis."

Crypto

FTX EXTENDS LIFE RAFT TO BLOCKFI — Our Sam Sutton: "The global crypto exchange FTX has agreed to a deal that will give it the option to acquire BlockFi if the troubled digital asset lending platform meets certain performance objectives."

BILL TO GRANT CRYPTO FIRMS ACCESS TO FED ALARMS EXPERTS — WaPo's Tory Newmyer: "A wave of notoriously risky cryptocurrency firms could one day be integrated into the traditional banking system under a little-noticed provision in a new bill that is raising alarms among financial experts about potentially destabilizing consequences. The provision — part of a sweeping proposal to regulate the crypto industry that Sens. Cynthia M. Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced in June — would force the Federal Reserve to grant so-called master accounts to certain crypto firms seeking them from the central bank."

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Jobs Report

JOHNSON TAKES REINS AT CBA — Lindsey Johnson officially takes over as president and CEO of the Consumer Bankers Association starting today. (Long time CEO Richard Hunt will continue to serve as a senior advisor to help with the transition until Aug. 31.) Johnson, who served previously as president of the U.S. Mortgage Insurers, kicks off her tenure with this video message to CBA members today.

Also: Matt Grossman is joining Macquarie Group as a government affairs manager. Grossman was previously a government and community affairs specialist with Altice USA, and a management consultant with PwC's state and local government advisory practice.

Fly Around

Global oil prices could reach a "stratospheric" $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts, JPMorgan Chase & Co. analysts warned. — Bloomberg's Joe Carroll

World stocks rose in holiday-thinned trade on Monday, helped by a bounce in oil as concerns over tight supply outweighed recession fears. — Reuters' Carolyn Cohn

Ukraine has indicated that it needs $60 billion-$65 billion this year to meet its funding requirements, billions more than its allies have so far been able to pledge. — Bloomberg's Alberto Nardelli, Jorge Valero and Daryna Krasnolutska

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