A good employment print but headwinds are strong

Forget the employment number and focus on what is going on in the real economy. The world is changing so fast, that the employment data are backward-looking and not providing a strong indicator as to what the economy will be like over the next month. The following are a list of issues from the latest manager PMI survey, and this is not really accounting for more Ukraine war fallout.

• Energy price shock - over $100 oil and little reason to see this falling in the near-term. 
• General commodity price shock - metals and grains all higher which will put pressure on global growth.
• Logistical challenges - Significant backwardation in commodities and as fuel costs increase, shipping will be more expensive. Fertilizer is expensive for farmers.
• Supply chain disruptions - the supposed driver of transitory inflation has not been solved.
• Capacity constraints, shortages, and restocking issues - there are stock-out problems and limits on the ability to produce from continued supply chain issues. Production will not keep-up with demand. 
• Labor and staffing shortages - labor participation is higher, and unemployment moved to 3.8% but there is still an overhang of unfilled jobs. 
• Inflation - Continues to move higher and unlikely to reverse given the commodity price increases.

The stagflation story that did not take hold during the COVID pandemic has a higher probability of occurring. Using the NY Fed probability measure, the likelihood was only 6% for their most recent update, but current calculations will put that number at double that level.