Good Friday AM,
Wow… Non-Farm Payrolls in at 336K vs 170K; Unemployment 3.8 vs 3.7; Avg Hourly Earnings MOM 0.2 vs 0.3.
This was not what we needed but does it paint the accurate picture? That headline print, which I fund very curious, blew out markets for a bit.. Since then, they have come back. Equities were down a few hundred and the Dow is now positive the same amount. The 10-yr hit 4.87 and now back to 4.78… Mortgage bonds were down 80bps and now down 20.
The data was startling but really doesn’t move the needle much at all.
I am including a few snippets from the WSJ to help digest what it all means. I am the optimist and think the slowing wage growth data is more important than the headline jobs number which was skewed towards lower wage jobs. Additionally, the payroll data is figured a bit wonky… if someone chose (or had) to take a second job to make ends meet, this report counts them working twice. Hmmm. There is a separate survey, the household survey which you don’t hear about but showed employment only increased by 86k and if you were to impute that data back to the payroll survey, well, payrolls declined by 7k. I still think the Fed moves cautiously from here. I do not see this alone as a reason to expect another hike. Inflation data will drive that decision. Let’s give markets a chance to smooth out. Looming overhead though still remains the oversupply of bonds that the Fed continues to feed into markets. That is more unsettling to me than today’s report.
U.S. employers are hiring, workers are working and the economy appears to be powering through high interest rates, elevated inflation and labor unrest. Nonfarm payrolls rose by 336,000 in September, the biggest gain since January, and the unemployment rate held steady at 3.8%. Both numbers are historically strong, underscoring the resilience of the economy after the Federal Reserve raised interest rates to a 22-year high in an effort to slow the economy and tamp down consumer prices. More good news under the hood: Job gains were widespread across industries, the labor force is growing and wage gains are cooling–all factors that could help the Fed engineer a soft landing for the economy.
The Fed Is in a Pickle
The hiring pickup in September could make Federal Reserve officials less confident that inflation’s decline this summer will be sustained. Even so, Friday’s report is unlikely to resolve their debate over whether to raise rates again. Officials will pay close attention to the September consumer inflation report to be released next Thursday and to how concerns about stronger growth are already leading to higher borrowing costs in bond markets.
For the Fed, Good News on Wages
For the Federal Reserve, the inflationary implications of strong payroll growth were offset by a relatively benign reading on wages. Total hourly earnings rose just 0.2% and were up 4.2% from a year earlier. In the last three months they were up 3.4% annualized, which if sustained, would be compatible with 2% inflation. This was partly because of outsized growth in low-wage sectors, but even within those sectors, wages are soft. Leisure and hospitality earnings were flat for the month and for non-management employees, were up just 0.1%. For private education and healthcare workers, earnings rose just 0.2%.
Maybe Payroll Strength Is Overstated
The job market may not be as strong as the payroll figures imply. The separate survey of households showed employment only grew 86,000, a fraction of the payroll survey’s 336,000. Sometimes such discrepancies are because the surveys define jobs differently; for instance, someone who works two jobs is counted twice by the payroll survey but just once by the household survey. In September, though, household employment, when adjusted to fit the same definition as the payroll survey, was even weaker–down 7,000. The household numbers are very volatile so don’t assume they’re the true picture, either. In any case, the unemployment rate implied the economy is growing around its trend, not accelerating: It stayed near a cycle-high of 3.8%.
Please remain safe and healthy, make today great!