Eve is here. Supporting Wolf’s explanation for the reaction to the unexpectedly strong new jobs report and revised labor data, currency markets are currently reacting as if the Fed’s interest rate cut was unexpected. Emergency market currencies depreciated significantly.
Written by Ulf Richter, Editor wolf street. It was first published in wolf street
The distortions of the pandemic and the sudden entry of millions of hard-to-trace immigrants into the labor market are wreaking havoc on the accuracy of labor market data.
Employer payrolls increased by 254,000 in September, and July, which was revised downward last month, was also revised upward significantly, and August was also revised upward, resulting in an increase in the number of jobs created in September. The three-month average has jumped to 186,000. The three-month average for August was reported to be 116,000 at the time, but this revision has caused a frighteningly sudden deterioration. caused a lot of confusion – Corrected to a middling 140,000.
As it turns out, the sharp deterioration of the past two months was a false alarm. The labor market is doing just fine, creating a decent but not spectacular number of new jobs, the unemployment rate has fallen for the second month in a row, wages have jumped, and given inflation, the Fed has There is no need to cut interest rates any further. Pressure is already building again, but it could be further reduced, although perhaps at a slower pace than previously expected.
The blue line shows the three-month average of jobs created reported today. The red segment shows the three-month average reported one month ago.
The revised long-term outlook is as follows. The three-month average is right in the sweet spot of the strong labor market in 2018 and 2019.
It is clear that once the pandemic ends and labor shortages are resolved, hiring will continue at a furious pace. Employment has returned to a healthy, strong pace of growth.
This photo matches other data showing: Layoffs and layoffs remain very low. Companies are generally creating jobs at a reasonable pace and are retaining a steady number of employees.
average hourly wage Additionally, the annualized rate for August was revised upward from 4.9% to 5.6%. And in September, the annual rate increased by a further 4.5% from the upwardly revised August figure, bringing the three-month average to 4.3%, the highest level since January. The three-month average has been steadily increasing since April (red line). This is based on a survey of business establishments.
The 12-month average hourly wage increase increased to 4.0% in September and was revised upward to 3.9% in August (from 3.8% reported a month earlier). Combined, these two months represent the fastest acceleration since March 2022 and far exceed the 2017-2019 peak.
So when it comes to inflation, and what the Fed is concerned about, this accelerating wage growth is no longer going in the right direction.
major unemployment rate (U-3) fell to 4.1%, the second consecutive month of decline. Although 4.1% is historically low, it has increased compared to the labor shortage era in 2022. This is based on a household budget survey.
According to the Fed’s projections, the unemployment rate is currently below the Fed’s median forecast of 4.4% for the end of 2024 and 2025. Summary of economic forecasts announced at interest rate cut meeting.
The weakening in the labor market that the Fed predicted to justify its 50 basis point rate cut was either reversed, corrected, or did not materialize.
The large influx of immigrants over the past two years has also increased unemployment. The Congressional Budget Office estimates 6 million people in 2022 and 2023. – You will see: People who are looking for work but have not yet found one are counted as unemployed. And their influx into the workforce has pushed the unemployment rate up from last year’s lows.
An increase in the unemployment rate caused by a sudden increase in the supply of labor is a different dynamic than an increase in the unemployment rate caused by layoffs or a decline in labor demand, as seen during recessions.
Number of unemployed people The number of job seekers decreased for the second consecutive month to 6.83 million. The three-month average rose to 7.04 million.
The unemployment rate (graph above) accounts for the massive growth in population and labor force over the decades. The unemployment figures here do not take into account population and labor force growth, and for decades, population and labor force growth has also increased the number of people looking for work.
And the bond market has woken up.
This already follows news that last month’s labor market unrest was a false alarm, that aggressive interest rate cuts were not needed to save the labor market, and that rising wages were contributing to concerns about general inflation. As we have seen. Consumer price index for August and Julyand with what Companies talk about price increases,and, Pricing power that companies still have…
Now, the bond market has woken up on this news, with the 10-year Treasury yield now up 12 basis points to 3.97%, its highest level since August 8th. Since the rate cut, the 10-year Treasury yield has risen further. 27 basis points.
