Employment and Turkey
This morning, during our daily desk chat, there were two topics of conversation that we thought worth mentioning. The first was the US Non-Farm Payrolls (“Jobs”) Report and the second was Turkey. The Jobs Report is useful for tracking the employment situation in the US. Given that consumer spending is two third of US GDP, it is also a good barometer for the US economy. We noted that the street view is somewhat pessimistic. Also, this morning, there were a number of big headlines concerning job cuts, including a memo from Tesla Inc. CEO Elon Musk that they will cut their workforce by 10%. The second topic was inflation and the huge year-on-year CPI print in Turkey (73.5%). This sparked a lively discussion amongst the investment team.
- The US added 390k jobs last month, which was better than expected. When the pandemic hit, 1.5 million jobs were lost in the first month and another 20.5 million in the second. After the stimulus was enacted, two years later, 21.2 million jobs have been created, recovering most of the losses from COVID mitigation measures. However, we are not totally back to normal as the participation rate is lower (Figure 1) and wages are now materially increasing.
- Figure 2 shows the situation in Turkey, which we present as a live example of how runaway inflation and poor governance can impair an economy. Note that the stock market in local currency terms has doubled over the past year, but when one takes in the depreciation of the currency into account, there has been no change. The Central bank there is not independent, and their President has refused to increase interest rates to combat inflation. Thus, the currency had deprecated against all other major countries. This will not end well for them.
“This means that” while economies continue to recover, there are major implications from the substantial global changes that we are now experiencing (supply chain, global central back actions, China COVID mitigation efforts, war). Ultimately, this will take some time to play out and we should expect more volatility.
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