Home Budget & Tax News Economy Continues to Soar, Though Inflation Looms

Economy Continues to Soar, Though Inflation Looms

Today’s employment report for May confirms that the economy continues to soar.  Average hourly earnings rose at a 10 percent annual rate from the first quarter, a further indication of upcoming inflation.

The Week That Was

Economic news this past week continue to show business activity soaring in May. Today’s
employment report confirms other data. Private employment increased in May by 492,000, a 5 percent annual rate of growth. Hourly earnings rose sharply, up at a 10 percent annual rate from the first quarter. Employers are raising wages in response to the shortage of workers.

ISM business activity surveys for May were above 60, indicating very rapid growth. Both manufacturing and service companies registered improvements from April’s already strong readings.

Weekly initial claims for unemployment compensation continue to plummet. Claims fell to 385,000 in the fourth week in May. That is down from 428,000 in the past four weeks.

Things to Come

The only significant economic news scheduled for next week is the CPI (consumer price
index), due on Thursday.

Commodity prices were up significantly in May, and business surveys confirm shortages of goods and upward price pressures throughout the economy. Consumer prices for May (both the total and ex-food and -energy) are likely to be up at least 0.3 percent and 0.4 percent, respectively. If so, the year-over-year inflation numbers will have increased to 3 percent to 5 percent, the highest yearly inflation since 2011.

Supply chain problems continue to be reported throughout the country. This is due in part to the sharp acceleration in demand as well as federal labor assistance policies that pay people for not working.

Market Forces

None of the major stock indexes had any significant moves over the past week. It appears
as if the stock market has taken an early summer vacation.

The S&P500 remains 25 percent above its fundamental value. Even so, S&P company profits soared in the first quarter, well above their longer-term trend. Second quarter profits are also likely to be very strong.

This upward momentum will not only continue in the months ahead, it is likely to carry over well into the second half of the year.

When the Fed pumps a significant amount of money into the economy, it has to go somewhere. Stocks are often the key beneficiary of new money. In spite of the market’s overvaluation, the next move is more likely to be to higher than lower.

Longer-term interest rates remain low. The yield on 10-year Treasury notes has settled in the 1.6 percent vicinity. This coming week’s consumer price index will likely raise concerns over imminent inflation. If so, look for longer-term rates to move higher.

Bondholders continue to expect the Fed to keep interest rates low. However, longer-term rates can move higher without a rise in short-term rates. The one percentage point increase in longer-term rates this past year shows that they can move without a change in short-term rates.

Outlook

Economic Fundamentals: positive

Stock Valuation: S&P500 overvalued by 25 percent

Monetary Policy: highly expansive

Robert Genetski
Robert Genetski, Ph.D., one of the nation’s leading economists and financial advisors, has spent more than 35 years promoting the use of classical economic and investment principles for sound financial decisions. He heads ClassicalPrinciples.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisment -

Most Popular

Illinois Democrats Launch a Cultural Revolution

In these head-spinning times, first principles about government are all in play: what it’s for, and how it relates to the people. Not long ago,...

‘Huge Win for Democracy’: GOP Blocks Federal Election Takeover

By Fred Lucas An attempted federal takeover of elections was thwarted Tuesday, as Senate Republicans voted to block further debate on the legislation. With Vice President...

Biden Administration Revoking Trump-Era Benefit-Cost Clean Air Regulations

The U.S. Environmental Protection Agency has begun the process of reversing a rule implemented by the agency under the administration of then President Donald Trump, requiring transparency of the scientific and economic justifications of regulations imposed by EPA to limit air pollution.

Florida Makes Sure Schools Teach Evils of Communism, Totalitarianism

By Jarrett Stepman The revolt against indoctrinating students and other Americans with critical race theory is ramping up, despite left-wing denial and opposition. But a simple reaction...
- Advertisement -

Recent Comments

MaryJean38@Comcast.net on CDC Ignores Scientific Studies on Masks
Many Climate Crisis Claims Are Based on Manipulated Science on How to End Biden’s Fake Climate Apocalypse
Scottar Brooke on Free Speech? Forget It.
Randy M Verret on The Gaslight Election
S. T. Karnick on The Gaslight Election
Randy M Verret on The Gaslight Election
S. T. Karnick on The Gaslight Election
Randy M Verret on The Gaslight Election
S. T. Karnick on The Gaslight Election
Randy Verret on The Gaslight Election
Randy Verret on The Gaslight Election
Breonna Taylor Settlement: What it means for No-knock Warrants – Gun News on U.S. Senator Attacked by Mob
Breonna Taylor Settlement: What it means for No-knock Warrants ~ N6AQ.com on U.S. Senator Attacked by Mob