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Non-Farm Payrolls Good News Equals Bad News

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Friday, December 2, 2022

The monthly jobs totals from the U.S. Bureau of Labor Statistics (BLS) are out this morning, and are mostly more robust than expected: 263K new jobs were filled in November, the lowest tally of the past 12 months but still 63K higher than analysts were expecting. October BLS nonfarm payroll positions were revised up from 261K originally to 284K this morning. The Unemployment Rate remained steady month over month at +3.7%.

The private sector gained 221K by itself, and the government (mostly local) added another 42K last month. Biggest job gainers by industry are Leisure/Hospitality +88K and Education/Healthcare +45K. Retail lost -30K positions in the month, while Trade/Transportation was down -15K jobs. So far in 2022, 392K jobs per month is the moving average — down notably form the 562K per month in the Great Reopening of 2021.

Perhaps most revealing about this strong employment report was in wages, which were up big — and unexpectedly: Average Hourly Earnings of +0.6% month over month doubled expectations, and registered the highest growth since October ’21. Year over year, this number is +5.1%, up 40 basis points (bps) from the previous month, which had been the lowest read since August of ’21, and the highest since August’s +5.2%.

Labor Force Participation fell to July lows at 62.1%, which is strange when we’re seeing unexpected gains in job totals. Average Hours Worked stayed tepid, as well: 34.4 hours per week, down a tick from the 34.5 posted the past five months straight — but still low relative to “normal” employment registers. (Reminder: we are not living in “normal” times.) On the other hand, the U-6 (aka “real unemployment”) came in at a cycle low 6.7%.

Wages going up is a sign of inflation in the economy, which the Fed continues to try to stamp out. And wages won’t be going down until labor shortages start to shrink, and they’re not shrinking. And if we’re happy to see the labor force make more money and increase their purchasing power, we’re going to need to see better productivity, and we’re not doing that either. So we’ve kicked our toe this morning on the “good news is bad news” of a hotter-than-expected jobs report. Poor us.

The Dow has sold off -400 points at this stage of the pre-market, the S&P 500 is -65 and the Nasdaq -265 points at this hour. The initial question that pops up is: “Does this mean Fed Chair Jay Powell is going to change his mind on only hiking interest rates 50 bps?” While it’s tempting to put so much currency in one economic print, chances are the Fed’s mind is already made up. But will they continue interest rate hikes through Q1 2023? Depends on if the jobs market cools down a bit.

Keep in mind employment metrics are lagging indicators on economic growth; businesses don’t like laying off employees and then having to hire them right back — they tend to only let people go when they’re sure. While it seems like big tech companies all over the country are bringing down their payrolls, we might be seeing laid-off workers being picked up elsewhere immediately — another condition of current labor shortages.

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