Daily Brief: These US Job Numbers Aren’t Exactly Good, But Every Cloud…

Daily Brief: These US Job Numbers Aren’t Exactly Good, But Every Cloud…

over 2 years ago3 mins

Data out on Friday showed that the US economy added way fewer jobs than expected in May, as the pandemic continues to show America exactly who’s boss.

What does this mean?

There were 559,000 more US jobs last month than there were in April. That’s not just lower than the 670,000-plus economists were predicting, it fell a long way short of the so-called “whisper number” – the figure investors were expecting – of around 800,000.

The US unemployment rate did fall, to be fair – from 6.1% to 5.8%. And, significantly, working Americans’ wages were 2% higher in May than they were a year before, compared to economists’ projections of 1.6%. Still, even that’s a concern: higher-than-expected wage growth could be yet another sign that already-high US inflation risks running out of control.

Less than forecast

Why should I care?

For markets: What’s bad for the goose is good for a gander.

Lowball job additions are bad for the economy, even if those in work are being paid more than last year. But this situation could counterintuitively be good for investors. If the US recovery remains tentative, the country’s central bank is unlikely to end its economic support any time soon. And keeping interest rates lower for longer – and keeping borrowing cheap – would be a boon to the “growth” stocks in market-dominating sectors like tech.

The bigger picture: America isn’t working.

There are still 7.6 million fewer US workers than there were in February 2020, when the country was as close to full employment as it’s ever been. But many of those lost jobs will never return: the pandemic has pushed plenty of people into early retirement or full-time childcare. In fact, America’s 62% labor force participation is way lower than the 80%-odd average rate in both the UK and the eurozone. America’s crippling opioid epidemic isn’t doing that discrepancy any favors either, so solving that crisis could be key to long-term economic prosperity.

Labor force participation
Source: The New York Times

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An Ackman-Backed SPAC Wants To Buy A Stake In Universal Music Group

SPAC image

Bill Ackman's special-purpose acquisition company (SPAC) is reportedly looking to buy a stake in music label Universal Music Group, but only after it smashes up its hotel room.

What does this mean?

SPACs – listed shell companies that merge with unlisted companies to fast-track their arrival onto the stock market – kicked off in a big way last year. And among the onrush of new contenders came one from hedge fund wunderkind Bill Ackman – a pedigree that helped it raise $4 billion this time last year.

Now, Ack’s SPAC is looking to buy 10% of Universal Music Group from French music giant Vivendi for $4 billion. That’d value the company at around $40 billion – up from the $36 billion it was penciled in at when China’s Tencent bought its own stake back in 2019.

Pershing Square Tontine Holdings stock
Source: Barron’s

Why should I care?

The bigger picture: Please don’t stop the music.

Sure, a music label might seem like a left-field choice at a time when streaming platforms’ subscriber growth is slowing down. But there might actually be a lot of money in owning superstars’ back catalogs, whose royalties could provide a steady and substantial income. What’s more, Western music streaming services are relatively scarce in Asia, which means there’s still a lot of room for growth elsewhere – if a label can handle the risk of piracy, that is.

Zooming in: The Ackman name isn’t a guarantee.

If a SPAC doesn’t do a deal within two years of listing on the stock market, it has to return all the capital it raised. And given that Ackman’s is 12 months deep, the pressure is on. But even if the deal does go ahead, SPACs’ track record is choppy: only 26 of the 89 listed between 2015 and July 2020 delivered gains. Combine that with a slowdown in funding from institutional investors, and it might only be a matter of time before the SPACs craze fizzles out.

SPACs fall flat
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