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Friday 2 December 2022
Today’s newsletter is by Myles abroad, senior market editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo Finance app for apple or Android.The Yahoo Finance app.
The work report for November will be published in just a few hours.
And while monthly inflation numbers have taken the title as the most important piece of economic data for investors over the past year, the jobs report shouldn̵[ads1]7;t be overlooked.
That’s largely because, in Federal Reserve Chairman Jerome Powell’s view, recent jobs reports have been just too good.
In a speech earlier this week, Powell said the labor market “shows only preliminary signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation over time.”
“Although job vacancies have moved below their highs and the pace of job gains has slowed from earlier in the year, the labor market continues to be out of balance, with demand significantly outstripping the supply of available workers,” Powell said at a news conference last month.
Economists expect the November jobs report to show that the US economy added 200,000 jobs last month and the unemployment rate is expected to remain at 3.7%. A miss on those expectations would be (relatively) good news for the Fed, which is working to curb inflation by slowing the economy.
Or as Powell said in the same press last month: “Reducing inflation will likely require a sustained period of below-trend growth and some softening of labor market conditions.”
The current economic expansion – and the dreaded recession – is one defined by inflation.
Unexpectedly flush with cash during the pandemic, consumers were forced into new ways to spend their money due to the pandemic, all while global supply chains faced unprecedented clogs.
A generation of investors and consumers who had never really confronted inflation as a risk suddenly saw their world defined by rapidly rising prices.
In the mid-2010s, investors were concerned about the risk of deflation for the global economy to fall back into recession. In the current market, stocks cheered a slowdown in annual inflation growth to 7.7% from 7.9%.
Even allowing for those who chide me for not understanding that markets care primarily about the second derivative—ie, the change in the rate of change, not the rate of change itself—the series of events that led to 7.7% inflation was a good result. things for markets would have seemed ridiculous just a few years ago.
And yet here we are.
The recession that followed the great financial crisis, on the other hand, was one defined by unemployment. Millions of workers lost their jobs after the housing bust, and it took the better part of a decade for overall US employment to recover. Remember, this was the decade of the overeducated, underemployed graduate.
Back in August, when we noted that the labor market’s “stunning” recovery was complete, that observation echoed what was seen as the most depressing piece of economic data since the GFC: the never-ending crisis for the US economy back to pre- crisis employment levels.
In the end, the journey took more than seven years to complete after the GFC. After the pandemic-induced recession, the economy recovered over 14 million job losses in less than two and a half years.
Federal Reserve officials, of course, have a big role to play when investors turn their attention.
Recent Fedspeak has centered on officials wanting to see another reading on inflation before judging whether a cut in the current 0.75% rate hike is warranted later this month.
What you hear less about from most central bankers these days is what kind of job growth they want to see. That is, with the exception of Powell.
Because the Fed Chair hair been clear on 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 the financial markets, which right now want the same thing – for inflation to finally come down.
What you should see today
8:30 a.m. ET: Change in Nonfarm PayrollsNovember (200,000 expected, 216,000 during the previous month)
8:30 a.m. ET: UnemploymentNovember (3.7% expected, 3.7% last month)
8:30 a.m. ET: Average hourly earningsmonth-on-month, November (0.3% expected, 0.4% last month)
8:30 a.m. ET: Average hourly earningsy-o-y, November (expected 4.6%, 4.7% last month)
8:30 a.m. ET: Average weekly hours for all employeesNovember (34.5 expected, 34.5 during the previous month)
8:30 a.m. ET: Labor force participationNovember (62.3% expected, 62.3% last month)
8:30 a.m. ET: Underemployment rateNovember (60.8% last month)
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