A “Call for Help” sign appears in a store window in Manhattan, New York City, December 2, 2022.
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As far as employment figures go, November’s was nothing like what the Federal Reserve wanted.
Higher-than-expected hiring and wage growth more than double Wall Street’s projections only add to the delicate tightrope walk the Fed will have to navigate.
Normally, a strong job market and skyrocketing worker salaries would be seen as high-end issues. But with central banks trying to stem persistent and nasty inflation, this is all too good.
Aneta Markowska, chief financial economist at Jefferies, said in a nonfarm payrolls analysis, as did most of Wall Street’s on Friday, that “the Fed is fearing higher inflation expectations will rebound at the moment. I can’t afford to take my feet off the gas.” “Wage growth is in line with nearly 4% inflation, which suggests more needs to be done by the Fed,” she said.
Employment increased by 263,000 in November, well above Dow Jones’ estimate of 200,000. Wages rose 0.6% in the month, doubling his estimate, and his average hourly earnings in the 12 months rose 5.1%, beating his 4.6% forecast.
Add all of this up and you have a similar prescription for the Federal Reserve — the continued rate hikes the central bank has been doing since June to 4 per meeting. Even if it’s a little less than a minute 3 percentage points, it will continue. .
Little impact of policy change
This figure shows that a rate hike equivalent to 3.75% has had little impact on labor market conditions so far.
“We have yet to see the impact of Federal Reserve policy on the labor market,” said Elizabeth Croft, senior labor market economist at RightCast. It is a matter of concern whether they regard it as a good indicator,” he said. analytics company.
Much of the post-report street analysis was seen through the prism of the Fed chairman’s comments Jerome Powell made Wednesday.The central bank governor has outlined a set of criteria he’s watching for clues as to when inflation will ease.
Among them were supply chain issues, housing growth and labor costs, especially wages. He also cautioned against some issues, such as the focus on service inflation minus housing, which he believes will recede on its own next year.
“The labor market, while particularly important for inflation in core services, excluding housing, is only showing signs of a temporary rebalancing,” Powell said, adding that wage growth is likely to hover between 2% and 2% inflation over time. “Despite some encouraging progress, we still have a long way to go to restore price stability.”
In a speech at the Brookings Institution, he said he expects the Fed to scale back rate hikes. He added that it was likely necessary to keep
“November’s jobs report is exactly what Chairman Powell was most concerned about this week,” said Joseph Lavogna, chief U.S. economist at SMBC Nikko Securities. “As the labor supply continues to shrink, wages are rising faster than productivity. Monetary policy will need to be more restrictive and sustained longer to restore labor demand and supply.”
Road to “Goldilocks”
Certainly not all is lost.
Powell said the economy still has a way to go for a “soft landing”. The result may appear to be no recession at all, or only a shallow recession, but a prolonged period of below-trend growth with at least some upward pressure on the unemployment rate.
But it could take near-perfect stormy conditions to get there. Decline in labor demand without mass layoffs, continued easing of supply chain bottlenecks, cessation of hostilities in Ukraine, reversal of upward trend in housing costs, especially rents. .
From a pure labor market perspective, this would eventually mean 175,000 new jobs per month (average 392,000 in 2022), with annual wage growth in the 3.5% range.
There are some signs that the labor market is cooling. The Labor Department’s household survey, which is used to calculate the unemployment rate, saw him drop 138,000 in the number of people who said they were working. Some economists believe the household survey and the facilities survey, which counts jobs rather than workers, could converge soon, making the employment situation more muted.
“The biggest disappointment was the strong wage growth,” Mark Zandy, chief economist at Moody’s Analytics, said in an interview. We need to bring it down, and that’s what we need to worry about the most.”
Still, Zandy said he suspects Powell was too upset by Friday’s numbers.
“The inflation outlook is highly uncertain, but is following a path consistent with the Goldilocks scenario,” Zandi said. “263,000 vs. 200,000 — it’s not a meaningful difference.”
