Job & wage growth push Fed

WendyBG · July 8, 2022, 2:16pm

https://www.nytimes.com/2022/07/08/business/economy/wages-jo…

**Strong Wage and Jobs Growth Keeps Fed on Track for Big Rate Increase**

**The Federal Reserve is trying to cool down the economy to bring inflation under control, but the job market is still going strong.**
**By Jeanna Smialek, The New York Times, July 8, 2022**

**Wages climbed briskly in June and employers continued their hiring spree, the latest evidence that the labor market remains strong even as the Federal Reserve tries to cool the economy and contain inflation. The data are likely to keep central bankers on track for a supersize rate move at their July meeting.**

**Employers added 372,000 workers last month, fewer than in May but more than economists had expected, data released Friday showed. At the same time, average hourly earnings picked up by 5.1 percent in the year through June, down slightly from 5.3 percent in the year through May....** [end quote]

Average Hourly Earnings of Production and Nonsupervisory Employees, Total Private is $27.45 per hour, compared with $24.03 per hour in January 2020. Wages for non-managers, which economists watch closely as a gauge of underlying strength in the labor market, climbed by 6.4 percent from a year earlier.
https://fred.stlouisfed.org/series/AHETPI

With the pandemic subsiding, the economy is shifting more toward the service sector (which is much larger than manufacturing). The service sector is labor-intensive, so rapid wage increases feed into inflation. However, the wage increases are lower than the CPI inflation rate of 8.6%.

The unemployment rate was 3.6 percent for the fourth month in a row, and the number
of unemployed persons was essentially unchanged at 5.9 million in June. These measures
are little different from their values in February 2020 (3.5 percent and 5.7 million,
respectively), prior to the coronavirus (COVID-19) pandemic.

The labor force participation rate, at 62.2 percent, and the employment-population ratio,
at 59.9 percent, were little changed over the month. Both measures remain below their
February 2020 values (63.4 percent and 61.2 percent, respectively).

The number of persons not in the labor force who currently want a job was essentially
unchanged at 5.7 million in June. This measure is above its February 2020 level of 5.0
million. These individuals were not counted as unemployed because they were not actively
looking for work during the 4 weeks preceding the survey or were unavailable to take a job.

https://www.bls.gov/news.release/empsit.nr0.htm

These are strong numbers for job and wage growth. There is little doubt that the Fed will raise the fed funds rate 0.75% next week. Even though the markets have been anticipating this, it’s possible that there will be a strong response. The Treasury bond market is responding as yields, which fell last week, are rising again.
https://stockcharts.com/freecharts/candleglance.html?$IRX,$U…

Although employment is a lagging indicator, the economy remains strong. The Fed has plenty of leeway to raise rates. If the next inflation reports are high the Fed will continue to raise the fed funds rate even if it causes a recession.

Wendy

flyerboys · July 8, 2022, 2:38pm

Wendy,

a rec as always (almost)
it is so important and (absurdly but truthfully) brave, to state and restate what is perfectly obvious in a world lost in delusions grounded in video game and social media pathologies.

david fb

MrPlunger · July 8, 2022, 3:27pm

There is little doubt that the Fed will raise the fed funds rate 0.75% next week.

The next FOMC meeting is July 27.

https://www.federalreserve.gov/monetarypolicy.htm

Yes at the moment they seem gung ho hiking. I wonder if they will be behind the curve in backing off just like they were so slow to get going … their monetary policy in 2021 was pro-cyclical … exactly the opposite of stablising the economy … at some point they could find themselves restrictive even with a recession taking hold … but all the more reason to be skeptical on stocks.

WendyBG · July 8, 2022, 4:43pm

Fed Chair Jerome Powell and the NY Fed president actually came straight out and said that they would continue to be restrictive even if a recession takes hold, if that’s what it takes to get inflation down.

Will they stick to their guns if the market starts screaming? I think they will because they are channeling Paul Volcker. They don’t want their names in the history book as an example of wimpiness causing worse inflation, like Fed Chair Arthur Burns.

Powell backed down in late 2018 when the stock market had a hissy fit – but inflation was low at the time.

This is why I am skeptical on stocks. I think the current bear market is mild and only due to the Fed’s jawboning higher fed funds rate. I don’t think the market is taking the coming recession into account.

I think the stock market will sink for a longer time and deeper than traders are expecting.

I think the bottom will not be seen until (1) inflation drops to 2% (that would be the Fed’s favorite core inflation, not the CPI which is higher) and (2) the Fed starts cutting the fed funds rate.

Wendy

Goofyhoofy · July 10, 2022, 8:21am

I don’t think the market is taking the coming recession into account.

Everybody’s predicting recession, but it’s late to the party.

Jobs? Whatever Happened to the Recession?

The economy added 372,000 jobs in June, a hotter-than-expected boost to the labor market that may ease worries of an impending recession, but that also complicates the job of the Federal Reserve as it seeks to quell inflation. The unemployment rate was 3.6 percent, the same as a month earlier, the Labor Department reported Friday.

The private sector has now regained its prepandemic number of jobs, while the public sector remains 664,000 jobs below February 2020. Other than the public sector, **no industry lost jobs in June,** on a seasonally adjusted basis.

“We’ve essentially ground our way back to where we were pre-Covid,” said Christian Lundblad, a professor of finance at the Kenan-Flagler Business School at the University of North Carolina. **“So this doesn’t necessarily look like a dire situation, despite the fact that we’re struggling with inflation and economic declines in some other dimensions.”**
https://www.nationalreview.com/corner/jobs-whatever-happened…

MarkR · July 10, 2022, 1:17pm

These are strong numbers for job and wage growth. There is little doubt that the Fed will raise the fed funds rate 0.75% next week. Even though the markets have been anticipating this, it’s possible that there will be a strong response.

CPI is next week, Fed rate raise is 2 weeks after that. The CPI is almost surely going to be above 8 again, unless we get lucky with some odd combination of car prices and energy prices. But unfortunately, only some of the energy price decline took place in June, the rest took place in July. On the other hand, by the last week of July, the Fed will have some advance numbers on energy, and if the recent rapid decline continues till then, I suspect they will raise by 0.5% instead of 0.75%.

Not only is energy moderating, but almost all commodities are also moderating (I sure timed my copper buys badly), and the housing market is clearly moderating. So the Fed may indeed also moderate themselves if they feel the numbers in the autumn and winter are going to start coming in lower (that way they can say “see, we managed this bout of inflation well”.