Data out on Friday showed that the US added fewer jobs than expected last month, and companies are getting to a point where they’ll take what they can get.
What does this mean?
The US has beaten economists’ expectations for the last two months, but clearly it couldn’t handle the mounting pressure: the country posted 431,000 new jobs last month – some way shy of the 490,000 economists were expecting. And while that’s nothing to be sniffed at, there are still almost twice as many job openings as there are job seekers.
Source: The New York Times
Still, let’s look at the bigger picture: the US added nearly 1.7 million jobs last quarter, which puts economists’ expectations to shame. What’s more, the proportion of people in or looking for work – known as the “labor force participation rate” – is back to within a hair’s breadth of pre-pandemic levels.
Why should I care?
The bigger picture: We’re spiraling.
Desperate times call for desperate measures: a near-record 49% of small US businesses raised salaries in March in an effort to fill their vacant roles, helping push the average hourly pay up 5.6% from the same time last year. Thing is, businesses will probably just pass those higher costs back onto customers by raising prices, and that potential “wage price spiral” could push up inflation and put more even pressure on the economy as a whole.
For markets: A recession is nearly inevitable.
Investors are worried that Friday’s strong data will encourage the Federal Reserve to push ahead with plans to raise interest rates multiple times this year, potentially even with bigger increases than the typical 0.25%. And since investors are aware of the short-term damage that could do to economic growth, they’re flocking to longer-term assets like 10-year bonds. In fact, demand for them pushed their yields lower than those of 2-year bonds on Friday. That “inversion” is as rare as it is foreboding: it’s historically been a sign of an imminent recession.
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Global Dealmaking Fell To Its Lowest Level Since The Start Of The Pandemic
Data out last week showed that global dealmaking hit its lowest level since the start of the pandemic last quarter, now that every cent has become that much more precious.
What does this mean?
It was a record year for mergers and acquisitions (M&A) last year, and there were a couple of key reasons why. First, interest rates were so low that companies would’ve been crazy not to borrow cheap money while they could. And for another, they didn’t even need to borrow cash: stock prices were so high that companies could pay up using their own shares instead.
But this year’s taken a turn: central banks have been hiking interest rates to slow down rising prices, which has made it more expensive to borrow cash. And last quarter’s stock market dip meant companies’ shares suddenly didn’t go nearly as far. All that, at a time when higher costs are weighing heavier on their bottom lines. Say no more: the value of deals struck was 23% lower than the same time last year.
Source: Reuters
Why should I care?
Zooming in: Silver linings.
Still, it’s all relative, and companies were still keen to buy up other businesses. Firstly, this was the seventh-straight quarter where companies shook hands on a total of over $1 trillion worth of M&A. Secondly, they signed more deals worth over $10 billion than the same time last year. And thirdly, private equity groups – which buy struggling firms, improve them, and then sell them for a profit – spent a record amount on deals during the first quarter of the year.
The bigger picture: Your luck is running out, big banks.
Investment banks charge fees for advising on M&A, so this slowdown has analysts expecting some of the world’s biggest banks – including Citigroup and JPMorgan – to report a drop in quarterly profits for the first time in nearly two years. That might explain why JPMorgan’s and Citi’s stocks have fallen around three times as much as the US stock market this year.
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