Why the jobs report is still important to investors: Morning Brief

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Friday, December 2, 2022

Today’s newsletter is from miles udland, Senior Markets Editor at Yahoo Finance. Follow him on Twitter @MylesUdland and in LinkedIn. Read this and more market news on the go with the Yahoo Finance app for Apple either Android.Yahoo finance app.

The November jobs report will be released in a few hours.

And while the monthly inflation figures have taken the title as the most important economic data for investors over the last year, the jobs report should not be overlooked.

That’s largely because, in the opinion of Federal Reserve Chairman Jerome Powell, the recent jobs reports have been too good.

In a speech earlier this week, Powell said the labor market “shows only tentative signs of rebalancing, with wage growth remaining well above levels that would be consistent with 2% inflation over the course of the year.” weather”.

“Although job openings have hovered below their all-time highs and the pace of job creation has slowed since the start of the year, the labor market remains unbalanced, with demand substantially outpacing the supply of available workers,” Powell said. said at a press conference last month.

Economists expect the November jobs report to show the US economy added 200,000 jobs last month, with the unemployment rate expected to hold at 3.7%. Failure to meet these expectations will be (relatively) good news for the Fed, which is working to curb inflation by slowing the economy.

Or as Powell said in that same press release last month: “Reducing inflation is likely to require a sustained period of below-trend growth and some easing of labor market conditions.”

US Federal Reserve Chairman Jerome Powell attends a news conference in Washington, DC, the United States, on November 2, 2019. January 2, 2022. The US Federal Reserve. implemented its fourth straight interest rate hike of three-quarters of a percentage point on Wednesday amid the worst inflation in four decades. (Photo by Liu Jie/Xinhua via Getty Images) — US Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, the United States, on Nov. 2, 2019. Feb. 2, 2022. (Photo by Liu Jie/Xinhua via Getty Images)

The current economic expansion, and the much feared recession, is defined by inflation.

Consumers were unexpectedly flush with cash during the pandemic, forced to adopt new ways to spend that cash due to the pandemic, all while global supply chains faced unprecedented clogs.

A generation of investors and consumers who had never really faced inflation as a risk suddenly saw their world defined by rapidly rising prices.

In the mid-2010s, investor fears that the global economy would slip back into recession focused on deflation risks. In the current market, stocks cheered a Slowdown in annual inflation growth to 7.7% from 7.9%.

Even allowing for the scolding that berates me for not understanding that markets are primarily concerned with the second derivative, i.e. the change in the exchange rate, not the exchange rate itself, the series of events that led to 7.7% inflation is a good thing for the markets would have seemed laughable just a few years ago.

And yet here we are.

The recession that followed the Great Financial Crisis, by contrast, was defined by unemployment. Millions of workers lost their jobs after the housing bust, and it took the better part of a decade for overall US employment to recover. Remember that this was the decade of the overeducated and underemployed recent graduates.

back in august, when we note the “amazing” recovery of the labor market When completed, this observation was an echo of what had been seen as the most discouraging post-GFC economic data: the endless grind for the US economy to return to pre-crisis employment levels.

In the end, the journey took over seven years to complete after the GFC. Following the pandemic-induced recession, the economy recovered more than 14 million lost jobs in less than two and a half years.

Federal Reserve officials, of course, have an important role to play in where investors turn their attention.

Recent Fedspeak has focused on officials wanting to see another reading on inflation before judging whether a slowdown in the current rate of 0.75% interest rate rises is guaranteed by the end of this month.

What is heard less from most central bankers these days is what kind of job growth they would like to see. That is, with the exception of Powell.

Why the fed chair has He has been clear about the labor market conditions necessary to get this economy back on track.

And he noted that signs of weakness would be a welcome development for the central bank and financial markets, which right now want the same thing: for inflation to finally come down.

what to see today

Economy

8:30 a.m. Eastern Time: Change in Nonfarm PayrollsNovember (200,000 expected, 216,000 during the previous month)
8:30 a.m. Eastern Time: Unemployment rateNovember (3.7% expected, 3.7% over prior month)
8:30 a.m. Eastern Time: average earnings per hourmonth-on-month, November (0.3% expected, 0.4% in prior month)
8:30 a.m. Eastern Time: average earnings per houryear-over-year, November (4.6% expected, 4.7% prior month)
8:30 a.m. Eastern Time: Average Weekly Hours All EmployeesNovember (34.5 expected, 34.5 during the previous month)
8:30 a.m. Eastern Time: Labor force participation rateNovember (62.3% expected, 62.3% over prior month)
8:30 a.m. Eastern Time: underemployment rateNovember (60.8% previous month)