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.

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, 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.

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.

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).

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.