According to the BLS – we saw the strongest employment growth in 12 months alongside the fastest wage growth in 22 months (0.6% MoM). However, we also saw the lowest amount of weekly hours worked since 2010. Given the better than expect jobs gains and acceleration in wages (which remains well above the Fed’s objective) – it seems less likely the Fed can justify rate cuts in March. Probabilities for a cut in 2 months stand at 38%. This was above 70% just a month ago.
Jobs Data: Choose Your Narrative
Today we learned that December added 216K jobs. CNN reported it as a “red hot” print. Was it? From mine, the headline number offers us very little. For example, what I want to know is the following (a) where are the jobs are being added (e.g. public vs private sector and what sectors); (b) what are people being paid per hour (is it rising or falling?); (c) are people working longer hours (as part time work doesn’t pay a mortgage); and finally (d) what’s the prevailing trend (as one month’s data doesn’t account for much). The headline number doesn’t provide this detail – therefore we need to dig a little. My quick take – this report is weaker than what the headline suggests.
Why Would the Fed Cut?
Last week the market received what it interpreted as a ‘goldilocks’ jobs number. Not too hot. Not too cold. But just right. Non-farm payrolls (NFP) increased by 199,000 in November, according to the BLS. This was around 19,000 higher than market expectations – however not hot enough for the Fed to raise rates this week. As an aside, the Government added 49K jobs as part of the 199K (inline with their monthly average). The unemployment rate, meanwhile, fell to 3.7% from 3.9%, marking the longest stretch of unemployment below 4% since the 1970s. That’s essentially a full employment picture. So here’s my question – why would the Fed consider cuts at full employment?
Fed Warns, Stocks Shrug
“We still have a long way to go” – that was the not-so subtle warning from Jay Powell this week. After what many felt was a slightly less hawkish Fed Chair last week – sparking an equity rally – Powell attempted to adjust his tone at an IMF event. Was he successful? That’s hard to say – as equities seemed to shrug off any warning from the Fed – surging ahead to be up 15% year-to-date. Here’s my question: are investors being too sanguine about what’s still unknown?
For a full list of posts from 2017…