Here’s how the Fed reads today’s jobs report

There are currently around two vacant jobs for every unemployed person, and as a result employers have had to raise wages to attract suitable candidates.

That sounds like a good thing — and it is for Americans facing higher prices on everything from groceries to rent. But the Federal Reserve is not very happy about that. To fight inflation, it has to cool the economy, and higher wages do the opposite. Higher labor costs can also be passed on by companies to consumers, and that means higher prices.

If growth had continued to accelerate, the central bank would have had more reason to raise interest rates aggressively at its meeting later this month. But we are not out of the woods yet. The wage level is still high for the year, up 5.2%.

There are a number of factors contributing to higher prices – including supply chain and commodity pressures – but wages are the dominant driver of inflation going forward, said Aneta Markowska, chief financial officer at Jefferies. “Rising wages are creating a significant amount of inflation. Supply chain problems are expected to ease over the next year, but we̵[ads1]7;re still left with this labor problem.”

The only way to get to the Fed’s goal of a 2% inflation rate is to see wage growth slow sharply, she said. An increase of 0.3% is not enough as a slowdown.

Today’s report: The US unemployment rate rose to 3.7% in August, becoming warmer than expected. The economy added 315,000 jobs for the month, topping analysts’ estimates of 300,000 but marking the lowest monthly gain since April 2021. Wage growth also slowed to 0.3% for the month. Wall Street had expected an increase of 0.4 percent.

The Federal Reserve is looking for red-hot job growth to start cooling off in the fight to curb inflation. The report lowered market expectations for a more aggressive rate hike at the Fed’s September meeting, sending stocks higher.

The numbers provided some relief from last month’s jobs report, which blew expectations out of the water. More than half a million jobs were created, most in five months. Average hourly earnings increased by half a percent month on month.

In the weeks following the July jobs release, Fed officials took a more hawkish stance, saying interest rate hikes would continue until inflation falls and warning of economic “pain” to come.

Fed Chairman Jerome Powell cited the strong labor market as a reason for inflation concerns at his Jackson Hole speech last week. “The labor market is particularly strong, but it is clearly out of balance, with the demand for workers significantly outstripping the supply of available labor,” he said.

After the last Fed meeting in July, where the central bank raised interest rates by a whopping 75 basis points, Powell told me he was keeping a close eye on wage growth. His ultimate goal, he said, was to bring down inflation and achieve “a landing that doesn’t require a really significant increase in unemployment.” This can only be achieved by slowing wage growth.

Takeaway: Wall Street is currently pricing in a 60% chance of a 75 basis point rate hike at the September Fed meeting. This is a decrease of almost 15 percentage points since Thursday, before the jobs report was published. But there is still much uncertainty surrounding the Fed’s upcoming policy decision. There is a lot of economic data to digest in the first half of this month – especially August inflation numbers – and this is just one piece of a bigger puzzle.

“The Fed will require further evidence of easing before materially changing policy,” said David Page, head of macro analysis at AXA Investment Managers. “But on balance, these numbers are consistent with a 50 basis point Fed hike in September.”

China needs Wall Street

The US and China have finally come to an agreement on one of the biggest issues in global business: How Chinese companies listed on US exchanges should be audited.

Regulators from both countries announced an agreement last week that would allow U.S. officials to inspect the audit papers of those firms. The breakthrough means that, for now, more than 160 Chinese companies may have avoided the immediate threat of being kicked out of the world’s largest stock market, reports my colleague Michelle Toh.
The United States is wasting no time in getting started on these revisions. Reuters reported on Wednesday that officials chose Ali Baba (BABA), Yum China (YUMC) and other companies for a first round of inspections beginning next month.

A little background: US regulations stipulate that all companies on American stock exchanges must comply with requests to fully open their books by 2024 or face being barred from trading in the US. That’s a problem for China. The country has been hesitant to allow foreign regulators to inspect its accounting firms, citing security concerns. The tension has already caused some Chinese companies to withdraw from US markets.

Alibaba, whose shares have traded on the NYSE since 2014, outlined plans this summer to upgrade its Hong Kong listing to primary status, which it expects to happen by the end of this year.

Why it’s important: The long list of ventures goes beyond Alibaba and includes some of China’s top tech giants such as Baidu (BEGINNING)and (JD).

The impending audit deadline has already led to a decline in issues. US IPOs by Chinese companies have fallen significantly, with eight so far this year compared with 37 in the same period last year. The value of these agreements has also shrunk. So far in 2022, companies have raised just $332 million through IPOs on U.S. markets, down from nearly $13 billion a year ago.

The odds: This agreement is only a first step in the formalization of the audit protocol between the United States and China. It remains unclear whether China will actually comply. Last week, SEC chief Gary Gensler warned that companies still faced expulsion if their filings could not be accessed by US authorities. “The proof will be in the pudding,” he said in a statement.

Analysts at Goldman Sachs said this week that there is still a 50% chance of Chinese stocks being delisted.

However, this is unlikely to have a major impact on other contentious issues between the US and China. But that means China needs Wall Street. “The US-China relationship reminds me of conflicted relationships where at the end of the day they realize they can’t afford to be divorced,” said Drew Bernstein, co-chairman of Marcum Asia CPAs, an Asian accounting firm. companies wishing to enter American markets.

Anyone want to buy Zoom?

I don’t need to tell you that working from home is going well. The dust that collects on your Platoon (PTON) already done.

Now, the back-to-work era is turning on its next victim: Zoom.

The pandemic darling’s weak earnings outlook and falling stock price raise the question of whether the video conferencing company is a one-trick pony that needs to be part of a larger tech firm, my colleague Paul R. La Monica reports.

However, it may have trouble finding a suitor.

Zoom (ZM) must contend with several larger tech giants that already have similar products. Microsoft (MSFT) runs Teams and Skype. Cisco (CSCO) have WebEx. Google (GOOG) owner Alphabet operates Meet and Chat. apple (AAPL) have FaceTime.

That gives four other possibilities.

Meta (FB) could include Zoom in its messaging and social media apps. If Salesforce (CRM) combined Slack and Zoom, they would create a mega-productivity platform. Oracle (ORCL), the business software company, has a reputation as a serial buyer and has been looking for a way to expand into video. There is also private equity. Zoom executives may enjoy being released from the quarterly earnings report to Wall Street.

For now, Zoom remains mum on any acquisition possibilities, or maybe it’s just on mute.


The US jobs report for August posts at 8:30 a.m. ET.

Coming next week: US markets are closed on Monday for Labor Day. We’ll take a break that day and see you here on Tuesday.

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