The main thing about U. S. Employment Report
2023.01.07 08:32
The main thing about U. S. Employment Report
Budrigannews.com – Delivered a wild rally, earning a profit for the year’s first trading week. Because of the focus on the slowdown in wage growth, there was little discussion of signs that the labor market was still tight. However, despite the fact that investors view the jobs report as a victory for the Fed and less hawkish monetary policy, some Wall Streeters warn against getting carried away.
“That’s going to make this [economic] cycle different from previous cycles,” Brian Mulberry, client portfolio manager at Zacks Investment Management, told Investing.com’s Yasin Ebrahim in an interview on Friday. “When you combine the [labor shortage] with some slowing economic growth, but still strong demand for services… that’s going to make this [economic] cycle different from previous cycles.”
Mulberry added, “The Fed will not be able to provide relief to the economy in the form of lower interest rates that most people are expecting.” This is due to the robust labor market.
Over and above economists’ estimates of 200,000 jobs, the economy added 223,000 jobs last month. The fact that average hourly earnings decreased by 4.6%, which was higher than anticipated, has raised hopes that the Federal Reserve will soon abandon its hawkish tactics in the fight against inflation.
According to Jefferies, “the market seems to have reversed course [on pricing in higher rates] after the wage data this [Friday] morning.” Despite the fact that a rate cut at the end of the year is still priced in, Fed funds futures showed that bets on the peak rate fell below 5% following the data.
With the creation of 223,000 jobs in December, the average number of jobs added over the previous three months was about 247,000 per month. According to Jefferies, the slack in the labor market is approximately 1.5 million workers, and if this rate of job growth continues, it could wipe out the remaining supply of workers in just four months.
Employment growth will need to significantly slow down in order to prevent the inevitable acceleration of wage growth. However, this week’s labor market data suggests that the red-hot labor market will continue, prolonging the Federal Reserve’s war against inflation for longer than many anticipate. The data showed that there were still nearly twice as many openings for each job seeker in November.
Jefferies added, “Either the labor market will continue to tighten and wage pressures will continue to intensify,” or “employment growth must significantly slow from here.” We continue to lean toward the second scenario.”
Others concur, citing the tight labor market as a major risk that will prolong the Fed’s cycle of tightening.
According to a note published by Morgan Stanley, “While this strong print today does not change our expectation of a step down to 25bps at the upcoming FOMC, continued robust jobs growth increases the risks of an extension of the tightening cycle beyond the next meeting.”
A decline in short-term Treasury yields is cited as evidence that the Fed will relent and abandon its hawkish policy by investors intent on continuing the game of chicken against the central bank by betting on a Fed pivot despite the central bank insisting that it will stay the hawkish course.
However, the Fed’s December meeting minutes demonstrated that no members anticipated rate cuts this year. Additionally, it raised concerns about “unwarranted easing in financial conditions,” particularly if motivated by markets’ “misperception” of a sooner rather than later pivot, which would make the Fed’s fight against inflation more difficult.
Mulberry stated, “A lot of people will say that means that in six to nine months, interest rates will have to come down when you see the shorter end of the yield curve inverted the way that it is now.”
“That has happened historically and is accurate assessment, but it was unanimous from all voting members of the FOMC in the minutes from the Fed’s December meeting [released] this week that they are going to keep interest rates high throughout the year,” according to the document. Mulburry elaborated.
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