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Friday, December 2, 2022
Today’s newsletter is from Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and other market news wherever you are with the Yahoo Finance app for Apple Where android.Yahoo Finance app.
The November jobs report is due out in a few hours.
And while the monthly inflation numbers took that headline as the most important economic data for investors over the past year, the jobs report shouldn’t be overlooked.
That’s largely because, in the opinion of Federal Reserve Chairman Jerome Powell, recent jobs reports are just too good.
In a speech earlier this week, Powell said the labor market “shows only tentative signs of rebalancing and wage growth remains well above levels that would be consistent with 2% inflation over the time”.
“Although job vacancies have fallen below their peaks and the pace of job creation has slowed since the start of the year, the labor market continues to be unbalanced, with demand far outstripping supply for available workers,” Powell told a news conference. last month.
Economists expect the November jobs report to show the US economy added 200,000 jobs last month and the unemployment rate is expected to hold steady at 3.7%. Failure to meet these expectations will be (relatively) good news for the Fed, which is trying to slow inflation by slowing the economy.
Or as Powell put it in that same presser last month: “Reducing inflation will likely require a prolonged period of below-trend growth and some easing of labor market conditions.”
The current economic expansion – and the dreaded recession – is defined by inflation.
Consumers have been unexpectedly full of money during the pandemic, forced into new ways to spend that money because of the pandemic, while facing unprecedented lockdowns in global supply chains.
A generation of investors and consumers who had never really viewed inflation as a risk suddenly found their world defined by rapidly rising prices.
In the mid-2010s, investor fears about the global economy returning to recession centered on deflation risks. In today’s market, stocks cheered a deceleration in annual inflation growth to 7.7% from 7.9%.
Even taking into account the chastising me for not understanding that markets care primarily about the second derivative – that is, the change in the rate of change, not the rate of change itself – the series of events that led to 7.7% inflation being good 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 crisis, and it took nearly a decade for overall employment in the United States to recover. Remember, this was the decade of the overeducated and underemployed recent graduates.
In August, when we noted that the “astonishing” labor market recovery was complete, that observation echoed what had been seen as the most disheartening post-GFC economic data: the endless scramble of the U.S. economy -crisis employment levels.
In the end, the journey took more than seven years after the GFC. Following the pandemic-induced recession, the economy recovered more than 14 million job losses in less than two and a half years.
Federal Reserve officials, of course, have a big role to play where investors get their attention.
The recent Fedspeak focused on officials wanting to see another reading of inflation before judging whether a slowdown in the current pace of interest rate hikes of 0.75% is warranted later this month.
What you hear less about from most central bankers these days is the kind of job growth they would like to see. In other words, with the exception of Powell.
Because the chairman of the Fed has been clear about the labor market conditions needed to bring this economy back into balance.
And he signaled that signs of weakness would be a welcome development for the central bank and financial markets, which currently want the same thing – for inflation to finally come down.
What to watch today
Economy
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8:30 a.m. ET: Change in non-farm payrollNovember (200,000 expected, 216,000 in previous month)
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8:30 a.m. ET: Unemployment rateNovember (3.7% expected, 3.7% in previous month)
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8:30 a.m. ET: Average hourly earningsmonth-over-month, November (0.3% expected, 0.4% in prior month)
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8:30 a.m. ET: Average hourly earningsYoY, November (4.6% expected, 4.7% prior month)
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8:30 a.m. ET: Average weekly hours All employeesNovember (34.5 expected, 34.5 in previous month)
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8:30 a.m. ET: Labor force participation rateNovember (62.3% expected, 62.3% in previous month)
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8:30 a.m. ET: Underemployment rateNovember (60.8% of previous month)
Earnings
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