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Why the jobs report still matters to investors: Morning Briefing


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Friday, December 2, 2022

Today’s bulletin is from Miles Abroad, senior market 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 An apple or Android.Yahoo Finance app.

The November jobs report is due out in just a few hours.

And while the monthly inflation data has become the most important piece of economic data for investors over the past year, the jobs report should not be overlooked.

That’s largely because Federal Reserve Chairman Jerome Powell said the latest jobs report was too good.

In a speech earlier this week, Powell said the labor market “shows only temporary signs of rebalancing and wage growth remains well above levels that would be consistent with 2% inflation over time.”

“Although vacancies have fallen below their peaks and the pace of job growth has slowed compared to earlier in the year, the labor market remains unbalanced, with demand significantly outstripping the supply of available workers,” Powell said at a press conference last month.

Economists expect the November jobs report to show the U.S. economy added 200,000 jobs last month and the unemployment rate is expected to hold at 3.7 percent. Missing those expectations will be (relatively) good news for the Fed, which is working to slow inflation by slowing the economy.

Or as Powell put it in the same post last month: “Reducing inflation will likely require a prolonged period of below-trend growth and some easing in labor market conditions.”

US 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 driven by inflation.

Consumers were unexpectedly awash in cash during the pandemic, forced to use new ways to spend that money due to the pandemic, while global supply chains faced unprecedented congestion.

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

In mid-2010, investors’ fears that the world economy would slip back into recession centered on the risks of deflation. In the current market, the stock rose slowing of annual inflation growth to 7.7% from 7.9%.

Even taking into account the reproaches that have been heaped on me for not understanding that the markets are primarily interested in the second derivative – ie. the change in the rate of change, not the rate of change itself – the series of events that led to 7.7% inflation is a good thing for markets would have seemed laughable just a few years ago.

And yet here we are.

In contrast, the recession that followed the Great Financial Crisis was defined by unemployment. Millions of workers lost their jobs after the housing crash, and it took the better part of a decade for overall U.S. employment to recover. Remember, this was the decade of the overeducated, underemployed recent college grad.

Back in August, when we noted the “amazing” recovery in the labor market was completed, that observation echoed what was seen as the most disheartening piece of economic data since the GFC: the endless grind of the US economy back to pre-crisis employment levels.

The journey ended up taking more than seven years after the GFC. After the recession caused by the pandemic, the economy recovered more than 14 million lost jobs in less than two and a half years.

Federal Reserve officials, of course, play a big role in directing investors’ attention.

The recent Fedspeak has focused on officials want to see another reading on inflation before considering whether there is a delay of the current 0.75% rate hike rate is guaranteed later this month.

What you hear less about from most central bankers these days is what kind of job growth they would like to see. That is, except for Powell.

Because the chairman of the Fed there is have been clear about the labor market conditions needed to bring this economy back into balance.

And he signaled that signs of weakness would be welcome for the central bank and financial markets, which currently want the same thing – for inflation to finally fall.

Table of Contents

What to watch today

Economy

  • 8:30 a.m. ET: Change in non-agricultural wagesNovember (200,000 expected, 216,000 in previous month)

  • 8:30 a.m. ET: Unemployment rateNovember (3.7% expected, 3.7% in the previous month)

  • 8:30 a.m. ET: Average hourly earningsmonth over month, November (0.3% expected, 0.4% in previous month)

  • 8:30 a.m. ET: Average hourly earningsy/y, November (4.6% expected, 4.7% previous month)

  • 8:30 a.m. ET: Average weekly hours All employeesNovember (expected 34.5, 34.5 in previous month)

  • 8:30 a.m. ET: Labor force participation rateNovember (62.3% expected, 62.3% in previous month)

  • 8:30 a.m. ET: Underemployment rateNovember (60.8% previous month)

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