09 Jan JOB GAINS AND THE LPR EXCEEDED ESTIMATES…WAGES GAINS LOWER THAN ANTICIPATED
The labor market remained strong but wage gains somewhat cooled. Non-farm payrolls rose by 223,000, exceeding the 203,000 estimate. The unemployment rate decline to 3.5% but the labor participation rate increased to 62.3%. Consensus was expecting a 3.7% rate and 62.2%, respectively. Wages however only increased by 0.3% versus the expected increase of 0.4%.
The Federal Reserve is adamant that unemployment must increase by 1 million people to quell cost push or wage inflation. As noted many times, the labor force is still 3.5 million workers smaller than it was in January 2020.
The economy is short of workers and there are two ways to increase supply…increase unemployment or increase the supply of workers.
Volumes—often with conflicting conclusions– have been written as to why the workforce has shrunk by 3.5 million workers since January 2020.
Unfortunately, the Fed is employing the only tool at its disposal to quell wage inflation…increase the supply of workers by trying to slow the economy.
The “market” is now suggesting the terminal rate is now 4.90% down from 5.06% right before the data was released and renewed talks of a “pivot” in 2023. Are these realistic expectations given Fed comments even after the statistics were published?
Equites advanced strongly off the lower-than-expected print on wages and the nominal increase in the LPR. Many are asking as to whether the gains are sustainable given that little has changed. Bloomberg writes that most of the trading was technical and momentum in nature, thus suggesting no real conviction. The term, however, “Goldilocks” was featured prominently throughout the trading session.
The economic calendar is comprised of the CPI, durable good orders, a small business sentiment survey, import/export prices and wholesale inventories.
Last night the foreign markets were up. London was down 0.06%, Paris up 0.31% and Frankfurt up 0.68%. China was up 0.58%, Japan up 0.59% and Hang Seng up 1.89%.
Futures are higher by 0.25%, driven by China’s reopening trade and expectations of slower rate hikes. Oil is up about 4%. The 10-year is off 8/32 to yield 3.59%.