According to President Biden, the big miss for Friday’s payrolls reinforces the need for massive fiscal stimulus. There is, of course, another interpretation: with such generous government support, Americans are not rushing back to work.
The current US administration is pushing the natural rate of unemployment higher. This will undermine the stated objective of raising the labour market participation rate, which lies behind The American Families Plan.
In March, personal income rose 29.0% y/y. Spending has recovered, and the Johnson Redbook retail sales report was strong again last week (+14.2% y/y). But the US personal sector is flush with savings (27.6% of disposable personal income in March).
There is not the pressure to return to work. Job openings are turning up (swiftly), but the US administration may inadvertently be pushing the natural rate of unemployment higher.
This would be a major reversal of the secular trend evident prior to the pandemic.
Friday’s stalled rally in Treasuries, following the biggest miss for payrolls on record, should be a warning to the US administration. So far, bonds have turned a blind eye to record fiscal deficits. But it is worried about inflation: a rise in the natural rate of unemployment will only add to the Treasury market’s concerns.
Summary
• Treasury market is clearly worried
• Inflation expectations rise despite jobs miss
• Financial stability starts with the government
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