Good Friday AM,
Well… the biggest data set of the month, the BLS Jobs Report came out today and it hurt.. a little.
This is why we don’t float into big data days. More jobs were created than expected (although the number at 199k is lower than almost every month during the last year). We will see how many of these jobs are seasonal. The unemployment rates dropped to 3.7% from 3.9% if you believe that calculations which, I don’t. Unit labor costs increased a bit as well. When looking at it in the context of recent data, this report seems strong but using the lens of historical norms, the report was.. meh.. I’ve read a dozen or so opinions from economists and they are largely in sync that this jobs report gives the Fed more runway to keep rates where they are. It doesn’t change the expectation that the Fed is done hiking, but it does allow the Fed to hold rates steady into Q2. We have a lot of data between now and Q2, so this report won’t mean much after next week. There is a lot of volatility today with the 10yr backing up to4.25% (we need to close below 4.26%) and mortgage bonds are current off 9bps after clawing back 62 from the earlier knee jerk reaction to the jobs report. I don’t think there will be much more movement today but of course, stay aware.
Deeper dive on the Jobs report from the WSJ is below.
While consistent with a soft landing, November’s jobs report showed just enough heat to warrant caution. Payroll growth, adjusted for strikes, did slow, but was faster than expected and well above prepandemic norms (though dominated by sectors trying to fill pandemic-era vacancies). The unemployment rate also declined, unexpectedly, to 3.7%, from 3.9%. It is thus no longer half a percentage point above its low, a recession warning sign. The unemployment rate dropped thanks to a huge, 747,000 gain in the household measure of employment. Adjusted to the same definition of employment as the payroll survey, household job growth was a still robust 483,000. Household employment is volatile; the more stable employment-population ratio ticked up to 60.5%, a new post pandemic peak. For prime-aged people, it remained in this year’s range.
Jobs Report Leaves Fed in Wait-and-See Mode
The Labor Department’s November employment report is about as perfect as it could get for the Federal Reserve. With inflation having slowed markedly in recent months, the continued cooling in job growth from earlier this year is likely to reinforce Fed Chair Jerome Powell’s latest guidance that the central bank can hold interest rates steady while it judges how much its aggressive hikes over the past two years will keep curbing economic activity and inflation in the months ahead. The Fed is set to make no change to its benchmark federal-funds rate at its two-day meeting next week. —Nick Timiraos
But the Fed won’t believe inflation has been beaten until wages are growing at a rate consistent with 2% inflation. On that front, November’s data was a minor setback. Hourly earnings rose 0.35% from October, a modest acceleration from the prior three months. Annual growth did slow to just under 4% from just over 4% in October. But the three-month annualized growth rate ticked up to 3.4% from 3%. That last figure, if sustained, would be consistent with 2% inflation—but not if the acceleration continues. The gains are still above that rate when leaving out management-level employees: Pay rose 0.4% in November from October, and the three-month annualized growth rate ticked up to 4.2% from 3.4%.
The unemployment rate fell to 3.7%, its lowest since July. It fell for all the right reasons: More people started looking for work and then found jobs.
The fall in unemployment left a closely watched indicator below the threshold that would indicate the U.S. is already in a recession. The Sahm rule, named for economist Claudia Sahm, compares the three-month average unemployment rate to its low over the prior 12 months.
The labor-force participation rate matched its highest level of the post pandemic era. The share of the population (ages 16 and over) working or seeking work rose to 62.8%. It was 63.3% in February 2020.
Please remain safe and healthy, enjoy the weekend, and first, make today great!