Market decides to ignore employment numbers
a dream March interest rate cut We survived the December employment statistics.
of The Department of Labor announced that employers added 216,000 jobs. Jobs added in December by 170,000 people, much faster than Wall Street had expected. The unemployment rate remained unchanged at 3.7%, contrary to expectations that it would rise to 3.8%.
The market's initial reaction was to reconsider expectations that the Federal Reserve would cut benchmark interest rates at its March meeting, but that was quick but short-lived. Before the numbers were released, the market had priced in about a 75% chance of a March interest rate cut. Immediately after its release, Odds dropped to about 57%.
But by noon Friday, they were almost done. Return to pre-employment numerical odds.
of bond market We followed the same pattern. Treasury prices fell and yields rose, with the 10-year Treasury yield above 4%, its highest since just before the dovish Federal Open Market Committee meeting in December. But as traders digest the employment statistics, 10-year bond yield has fallen This was down 3.991% from the previous day's closing price.
of stock market They marched in lockstep, sold in pre-market transactions, and rebounded when the spot market opened. By midday, the Nasdaq Composite Index was up 0.41%, the S&P 500 was up 0.38% and the Dow Jones Industrial Average was up 0.10%. 9 out of 11 S&P sectors rose The only sectors that are lagging at the moment are real estate and daily necessities. The rally was all the more remarkable because the stock had been down for the first three trading days of the year, making this year's weak start relatively rare by historical standards.
Traders work on the floor of the New York Stock Exchange in New York, Jan. 3, 2024. (AP Photo/Seth Wenig)
The market appears to have decided to take note of the idea that strong employment data could boost the economy. “Soft landing” The scenario is that economic growth remains strong, while ignoring the risk that the numbers could signal a warning sign of a resurgence of inflationary pressures.investors want goldilocks economy The Fed lowers interest rates to strengthen the economy, perfect inflationAnd they're not going to let any troubling facts get in the way.
Work was weaker than it looked…
However, this dream is fraught with danger. become a nightmare That's because while inflationary pressures from job growth may be even higher than they appear, there are signs that the underlying strength of the labor market is being exaggerated by the headline numbers.
Much of the growth in employment is due to government jobs and government jobsEducation, social services, health care, etc. will take place in December. Joe LaVognaSMBC Nikko Securities' chief economist called the report “soft” in a note to the bank's clients on Friday. He noted that private sector employment, excluding health care, grew by just 41,000 jobs on an annual basis over the three-month period. Similarly, temporary employment, considered by many to be the bellwether of the labor market, fell by 33,000 jobs, the 11th straight month of declines.
Lavorgna also drew attention to Friday's report from the Institute for Supply Management (ISM). While it showed continued growth in the services sector, the pace of growth slowed significantly in December. But more importantly, Lavorna The “shock” of the collapse of employment measures“Even taking a three-month moving average, employment in ISM services still fell to its lowest level since April 2010,” LaVogna wrote.
according to Free Economy Index for Novemberproduced by “woke free” recruitment site red balloon, the private sector has “frozen recruitment plans”. According to the survey, 64.4% of employers said they were neither hiring nor cutting staff.
…more inflation
meanwhile A major role for government employment December's report may mean the private sector labor market is softer than expected, but provides little reassurance against inflation. These government workers receive a salary and spend it on the economy, boosting demand. Additionally, governments compete with the private sector for employees, driving up wages. Faster wage growth increases inflationary pressures.
moreover, Government employees do not contribute to the supply of goods and services provided by the private sector, Government employment growth causes more inflation than private sector employment. When businesses hire more workers, the production and demand for goods and services increases. When the government increases employment, it only increases the demand for goods and services that are included in the inflation index.
Sophie Lund Yates, Principal Equity Analyst hargreaves lansdownesaid December's jobs report suggests that “heavier measures will be needed to slow economic activity.”
Lund Yates continues:
Data has a short-term impact, but the bigger questions are focused on the future. The resilience of the U.S. labor market has been significantly stronger than expected, making the challenge of bringing the situation under control without creating a crisis even more delicate. Although 2023 was a bumper year for the labor market overall, the overall temperature remains too hot for complete comfort. There's a good chance the Fed will require macro indicators to soften before hitting the rate unwind button. It's important to remember that labor force growth is slowing, and while this is a step in the right direction, there is work to be done.
December's jobs report is one of only three the Fed expects to receive before its March meeting.The market's decision to largely ignore it is likely looks like a mistake.
