Yesterday, we looked closely at how the labor market has changed over the past couple of decades. Briefly, the number of job openings kept growing with the economy, while the number of unemployed people stayed roughly constant. As a result, the number of jobs available per unemployed person hit new highs and the number of excess workers—available workers less the job openings—went into deficit. Before the pandemic, there were more job openings than workers to fill them, for the first time. Currently, although the pandemic changed things temporarily, the labor market is back to worker shortage. As we look ahead to the next decade, will this trend continue?

So, let’s get back to the labor market discussion we started last week. Today, I want to take a deeper look at the key assumptions we referenced the other day, specifically that there will end up being more workers than jobs. As we discussed then, this has been the case for decades. But, in recent years, that dynamic has been changing as employment rose to new highs and unemployment dropped to multi-decade lows.

Among last week’s important economic data releases, May’s housing sales, durable goods orders, and personal income and spending reports stood out. The pace of existing home sales fell for the fourth month in a row, as limited supply and rising prices hindered sales. Once again, this week will be packed with updates, including a look into consumer and manufacturer sentiment and the release of the June employment report.

With the ongoing improvement in the medical news, this will be the last of the regular coronavirus updates. I had hoped it would also be the end of the need to cover the pandemic as a separate topic. But with the potential rise of the delta variant of COVID and the possibility of new outbreaks, that may not be the case. I will be providing updates as needed in the future.

Today, I’ll take a break from focusing on the labor market to look at a related, but shorter-term issue—shocks versus trends. This topic has current relevance, as well as wider applicability, so it is worth thinking through.

At the start of 2020, I did a piece on inflation versus wage growth where I looked at a bunch of different indicators. The short version of that post is that, for working people, wage growth had generally been higher than inflation over the preceding five years or so.

Yesterday I appeared on Fox Business’ Mornings with Maria to discuss inflation and the market outlook. Watch the full segment.

One of the biggest questions for the economy right now is the job market. The headlines are doing a good job covering the immediate issues—labor shortages, wage increases, and so forth. But the more I look at it, there are a couple of implicit assumptions in how we view the job market that need more consideration. For example, much of the analysis has taken what is going on now as something that is happening without any warning and for no apparent reason. But is that really the case?

Last week saw a number of important economic data releases, with a focus on retail sales and producer inflation in May, as well as the Fed’s June meeting. Retail sales fell by more than expected, but we saw an upward revision to April’s sales report that helps explain the May decline. This week will be busy once again, with May’s housing sales, durable goods orders, and personal income and spending reports serving as highlights.

Last week, the FDA approved Biogen’s Alzheimer’s drug candidate, aducanumab (marketed as Aduhelm). This approval looks likely to be a watershed moment for the biotech industry. The shares of Biogen were halted for the announcement. And as anticipated, they popped once trading resumed.

Yesterday, the Fed concluded its regular meeting and came out with the following shocking news: it might start to raise rates in the next two and a half years, instead of the next three years. Markets dropped, interest rates rose, and headlines highlighted the shift in Fed thinking. What’s behind this apparent change in plans? Let’s start by taking a look at what didn’t happen.

The strength (or lack thereof) of the dollar is a perennial topic here on the blog. Looking at the past several years, I see “U.S. Dollar Still Failing to Collapse” (November 2015), “Should You Be Worried About the Strong Dollar?” (December 2016), and, after a bit of a hiatus, “The Dollar Is Not Collapsing” (July 2020). There are many other versions, of course. (Notably, I did a whole series on money and the dollar back in 2013.) But the message has consistently been this: exchange rates bounce up and down, but there is no reason to worry.

Yesterday I appeared on Nasdaq's TradeTalks to discuss economic risks, the impact of inflation on the markets, and more. Watch the full segment.

The regular meeting of the Fed starts today. Tomorrow, the Fed will issue a press release, describing any actions it decides to take, and hold a press conference where the chair, Jerome Powell, will take questions.

Last week saw a number of important economic updates, with a focus on April’s international trade report, May’s consumer inflation report, and the preliminary estimate of the University of Michigan consumer sentiment report for June. Consumer inflation came in above economist estimates, but the markets largely shrugged off the news. This week will be another busy one, with updates on May’s retail sales, industrial production, and new home construction serving as potential highlights.

This will be the last of the Coronavirus Update videos, at least for the foreseeable future. There will be one more written update, which will be posted on the blog on June 25.

Much of the commentary on recent issues—especially inflation—has focused on terrible reported numbers. As always, though, it is helpful to remember there is nothing sacred about those numbers. They have assumptions and biases built in, which are unavoidable. As analysts, we need to understand those assumptions and biases, so we can see when they are reasonable (and when they are not).

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Market Risk Update. Thanks for the assist, Sam!

Equity markets started off strong in May, but volatility later in the month led to a partial pullback. The S&P 500 and Dow Jones Industrial Average (DJIA) indices both hit all-time highs earlier in the month before suffering from volatility. Despite the turbulence along the way, the S&P 500 gained 0.70 percent during the month, and the DJIA saw a solid 2.21 percent return. The Nasdaq Composite fell by 1.44 percent, as the heavy technology weighting led to additional volatility for the index.

My colleague Sam Millette, senior investment research analyst on Commonwealth’s Investment Management and Research team, has helped me put together this month’s Economic Risk Factor Update. Thanks for the assist, Sam!

The economic recovery picked up steam in May, driven by continued improvements on the public health front and ongoing reopening efforts across the country. Improving business confidence was a highlight, as service sector confidence set a record high. The May employment report showed that the pace of hiring accelerated following a lull in April, although headline job growth came in below economist estimates.

Last week saw a number of important economic updates, with May’s business confidence and employment reports serving as highlights. This week will be relatively quiet, with only a few major releases scheduled. Given recent concerns about rising inflationary pressure, the focus will be largely on Thursday’s release of the Consumer Price Index for May.

Last week, I went back into the office after what felt like an eternity. I must admit, I had never realized how much I would miss the hallway greetings, the coffee machine chitchat, and the ladies’ room gossip! My kids are back in school full-time and took the MCAS (the state assessment for Massachusetts public students) last week. Fenway Park returned to full capacity, and vaccinated fans were allowed to go without masks for the Red Sox game on May 29. It is finally beginning to feel like life is returning to normal, to what it should have been if the past 14 months had not occurred. Elsewhere in the world, progress has not been as even, but there is reason to believe that glimmers of light are beginning to appear everywhere.

May was another good month, albeit one with some ups and downs. On the upside, the pandemic entered its endgame and corporate earnings blew away expectations. On the downside, the significant problems of success attending our move back to normal started to become apparent. Overall, May took us further along the road to normal, but it also began to reveal the bumps on that road.

It was a mixed bag for the markets in May, with the Dow up more than 2 percent, the S&P 500 up slightly, and the Nasdaq down. On the medical front, case growth and death rates declined, and more than 4 of 10 people are now fully vaccinated. With fading medical risks, the economy continued to improve. Layoffs are trending down, and consumer confidence remains close to pre-pandemic levels.

Last week saw several important economic data releases, with the weekly initial jobless claims report and the April personal income and spending reports serving as highlights. Initial unemployment claims fell for the fourth week in a row, providing an encouraging sign for the labor market recovery. This week, which is short due to the holiday, will be relatively quiet, with updates focusing on business confidence and employment.