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Friday 2nd December 2022
Today’s newsletter is from Myles Udland, Senior Markets Editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app for Apple or Android. Yahoo finance app.
The job report for November will be out in a few hours.
And while the monthly inflation figure has taken the title as the key economic data for investors over the last year, the jobs report shouldn’t be overlooked.
That’s largely because recent jobs reports were just too good, according to Federal Reserve Chair Jerome Powell.
In a speech earlier this week, Powell said the labor market is “showing only tentative signs of rebalancing and wage growth remains well above levels that would equate to 2% inflation over time”.
“Although job vacancies have slipped below their peaks and the pace of job gains has slowed from earlier in the year, the labor market remains unbalanced as demand significantly outstrips the supply of available labor,” Powell said in a press conference last week Month.
Economists expect the November jobs report to show the US economy added 200,000 jobs last month and the unemployment rate is expected to remain at 3.7%. A failure of these expectations would be (relatively) good news for the Fed, which is working to curb inflation by slowing the economy.
Or, as Powell said in the same press last month, “putting inflation down will likely require a sustained period of below-trend growth and some softening of labor market conditions.”
Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC, the United States, on November 2, 2022. (Photo by Liu Jie/Xinhua via Getty Images)
The current economic expansion – and the much feared recession – is being driven by inflation.
Consumers have been unexpectedly inundated with cash during the pandemic, forcing new ways to spend that money because of the pandemic, while global supply chains have faced unprecedented congestion.
The story goes on
A generation of investors and consumers who had never really viewed inflation as a risk suddenly found their world ruled by rapidly rising prices.
In the mid-2010s, investors’ fears of the global economy slipping back into recession focused on the risks of deflation. In the current market, stocks cheered a slowdown in annual inflation growth from 7.9% to 7.7%.
Even allowing for the scolding that accuses me of failing to understand that markets care primarily about the second derivative – i.e. changing the rate of change, not the rate of change itself – is the series of events leading to inflation of 7.7%, a good thing for the markets would have seemed ridiculous just a few years ago.
And yet here we are.
The recession after the Great Financial Crisis, on the other hand, was characterized by unemployment. Millions of workers lost their jobs after the housing crisis, and it took nearly a decade for overall US employment to recover. Remember, this was the decade of the overqualified, underemployed young graduates.
When we noted in August that the “amazing” job market recovery was complete, that observation echoed what was seen as the most disheartening part of the post-GFC economic data: the endless loop for the US economy back to pre-crisis employment levels .
In the end, the journey to the GFC took more than seven years. After the recession caused by the pandemic, the economy has recouped over 14 million job losses in less than two and a half years.
Federal Reserve officials, of course, play a big part in where investors focus their attention.
The latest Fedspeak focused on officials wanting to see another reading of inflation before assessing whether a slowdown from the current rate hike pace of 0.75% later this month is warranted.
What is less heard from most central bankers these days is what kind of job growth they would like to see. That is, except for Powell.
Because the Fed chairman has been clear about the labor market conditions needed to bring this economy back into balance.
And he signaled that signs of weakness would be a welcome development for the central bank and financial markets, which want the same thing right now – for inflation to finally come down.
What to see today
Business
8:30 a.m. ET: Change in non-farm payrollsNovember (200k expected, 216k last month)
8:30 a.m. ET: unemployment rateNovember (3.7% expected, 3.7% mom)
8:30 a.m. ET: average hourly wageMoM, November (0.3% expected, 0.4% mom)
8:30 a.m. ET: average hourly wageYoY, November (4.6% expected, 4.7% mom)
8:30 a.m. ET: Average weekly hours of all employeesNovember (34.5 expected, 34.5 last month)
8:30 a.m. ET: activity rateNovember (62.3% expected, 62.3% mom)
8:30 a.m. ET: underemployment rateNovember (60.8% previous month)
merits
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