and how sustainable is it?

We have had a number of pieces of excellent economic news

in recent weeks, the most important of which

is a sustained decline in unemployment,

with some two million Americans returning

to work in May and another three million in June.

This is fantastic.

But there is a disturbing undercurrent in the data.

Almost all of the jobs that were created in May and June

were the result of the reversal of temporary layoffs

in industries like restaurants and hospitality.

The trend in permanent layoffs is

pointing the opposite direction, with some two million Americans

losing their jobs permanently in those two months.

So which is the more indicative and important trend, the fall

in temporary unemployment or the slow increase

in permanent unemployment?

The recent spike in Covid-19 cases around the country

might suggest that the fall in temporary employment

is a fluke driven by the premature reopenings

of several states.

The stock market, however, does not think so.

It remains near its highs and has

responded to the news of rising caseloads with a shrug.

But once again, in another corner of the market,

there is a more negative counter-narrative.

Bond yields are flat on their backs, which

is, at least traditionally, an indication

of very low expectations for economic growth.

And real or inflation-adjusted yields

are even lower, as inflation expectations

have been picking up.

You can see those expectations and some investors' underlying

worries in the rising price of that old safe haven - gold.

So as with the unemployment numbers,

you have a choice of trends, the cheerful stock market

or the gloomy bond market.

One way to resolve this apparent contradiction

is to lay it all at the feet of the Federal Reserve

and argue that the only reason that yields are so low

is because of the Fed's activism and that low yields, in turn,

force investors to buy stocks.

Perhaps, but the idea that the markets are simply

dancing to the Fed's tune while they

ignore economic fundamentals is not a very cheerful narrative

either.