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Friday, December 2, 2022
Today's newsletter is by Myles Udland, senior markets 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.Yahoo Finance App.
The November jobs report is due out in just a few hours.
And though monthly inflation numbers have taken the title as the most important piece of economic data for investors over the last year, the jobs report should not be overlooked.
That's largely because, in the view of Federal Reserve Chair Jerome Powell, recent jobs reports have been just too darn good.
In a speech earlier this week, Powell said the labor market "shows only tentative 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 substantially exceeding the supply of available workers," Powell said in a press conference last month.
Economists expect the November jobs report will show the U.S. economy created 200,000 jobs last month, and the unemployment rate is expected to hold at 3.7%. A miss from these expectations will be (relatively) good news for the Fed, which is working to slow inflation by slowing the economy.
Or as Powell said in that same presser last month: "Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions."
The current economic expansion — and much-feared recession — is one defined by inflation.
Consumers were unexpectedly flush with cash during the pandemic, forced into new ways of spending that cash because of 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, investor fears about the global economy tumbling back into recession centered on the risks of deflation. In the current market, stocks cheered a deceleration in annual inflation growth to 7.7% from 7.9%.
Even allowing for the scolds who chide me for not understanding that markets primarily care about the second derivative — i.e., the change in the rate of change, not the rate of change itself — the series of events that led to 7.7% inflation being a good thing for markets would've seemed laughable just a few years ago.
And yet here we are.
The recession that followed the Great Financial Crisis, in contrast, 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 employment in the U.S. to recover. Recall this was the decade of the overeducated, underemployed recent graduate.
Back in August, when we noted the labor market's "astounding" recovery had been completed, this observation was an echo of what had been seen as the most discouraging piece of economic data post-GFC: the interminable grind for the U.S. economy back to pre-crisis employment levels.
In the end, the journey took more than seven years to complete after the GFC. Following 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 in where investors point their attention.
What you hear less about from most central bankers these days is what kind of job growth they'd like to see. That is, with the exception of Powell.
Because the Fed Chair has been clear about the labor market conditions needed to bring this economy back into balance.
And he signaled signs of weakness would be a welcome development for the central bank and financial markets, which right now want the same thing — for inflation to finally come down.
What to Watch Today
8:30 a.m. ET: Change in Nonfarm Payrolls, November (200,000 expected, 216,000 during prior month)
8:30 a.m. ET: Unemployment Rate, November (3.7% expected, 3.7% during prior month)
8:30 a.m. ET: Average Hourly Earnings, month-over-month, November (0.3% expected, 0.4% during prior month)
8:30 a.m. ET: Average Hourly Earnings, year-over-year, November (4.6% expected, 4.7% prior month)
8:30 a.m. ET: Average Weekly Hours All Employees, November (34.5 expected, 34.5 during prior month)
8:30 a.m. ET: Labor Force Participation Rate, November (62.3% expected, 62.3% during prior month)
8:30 a.m. ET: Underemployment Rate, November (60.8% prior month)