He Hates These Jobs!

[Editor’s note: For my younger readers, the title of this article is a classic American cinema reference. Anyone over 40 will surely recognize it.]

US traders staggering back to desks following a de facto four-day weekend will swim (or drown) in a veritable tsunami of key data this week, with November payrolls headlining on Friday.

At this point, after 375bps of rapid tightening, you’d expect the Fed’s efforts to show up in the labor market. So far, officials haven’t enjoyed much luck on that front. Of course, “success” means job losses or, ideally, fewer job openings. But employer desperation to fill millions of vacant positions is the key to rising wages. So, either way, “success” for the Fed is bad news for workers.

The Fed insists that isn’t true. Their position is that an overheating labor market is now the key driver of generationally higher inflation (never mind the housing bubble they facilitated and the lagged read-through of that bubble for rents, a critical and very sticky inflation component). Because inflation is the bane of middle- and lower-income families’ existence (as opposed to, say, unbridled capitalism without guardrails, or monetary policy that precipitates egregious inequality), an uptick in joblessness and a dramatic decrease in available jobs is a good outcome.

Consensus expects 200,000 from the headline NFP print (figure below). October’s report, you’re reminded, featured a strong headline beat accompanied by an uptick in the jobless rate. That would’ve been “good” news, were it not for an uninspiring downtick in participation and a sizable decline of 328,000 on the household survey.

This’ll be the last jobs report before the December Fed meeting. The November meeting minutes suggested the Fed is dialed in on 50bps at this month’s gathering. There’s one data point with the potential to tip the scales back in favor of 75bps and it’s not NFP. November CPI is due December 13, just a day ahead of the Fed decision, which means the bar for that print to compel an out-of-consensus three-quarter point move the next day will be extraordinarily high and would need to be communicated to markets by an eleventh hour Journal article.

“The evolution of the Fed’s hawkishness has left a higher unemployment rate as the next objective,” BMO’s Ian Lyngen and Ben Jeffery said. “[R]ecent rhetoric regarding the labor market will once again make NFP-Friday a macro event of note, not for the traditional reason of the Fed attempting to promote jobs growth, rather the opposite reasoning at this point in the cycle, as Jerome Powell pursues a gradual and orderly softening of jobs.”

JOLTS data for October is due Wednesday. Policymakers are hoping (praying, even) that the figures aren’t a re-run of the last job openings report, which showed the number of vacant positions across the economy actually rose.

The “soft landing” narrative lives and dies by the JOLTS figures. The Fed desperately needs them to cooperate. The figure (above) shows the extent to which the labor market overheating in the pandemic era isn’t a function of “excess” employment, but rather a shortage of labor. Whether that’s structural, the result of very poor matching efficiency (which is just a fancy way of saying “structural”) or temporary is a pressing concern.

Three and a half hours after the JOLTS data is released on Wednesday, Powell will deliver remarks at a Brookings event. Suffice to say his comments have the potential to move markets. The title of the chat is: “The economic outlook and the labor market.” Effectively, Powell will editorialize in real-time about the jobs market during jobs week. I suppose you could suggest that’s helpful. I’d be more inclined to say it’s just as likely to cause confusion.

In addition to November payrolls, October JOLTS, ADP and claims (which look like they might get interesting again soon), investors will get a look at personal income and spending figures for October, and accompanying updates on PCE prices.

Plainly, the PCE inflation prints need to “match” October’s CPI figures — not literally, but directionally. Consensus expects a 0.3% MoM increase on the core measure (figure above).

Frankly, the data docket this week is frustratingly busy. Not in the sense that I’m personally vexed by it, but rather in the sense that in the era of headline-scanning algos responsible for hair-trigger mechanical flows across every asset and instrument imaginable, from equities to STIRs, stacking the calendar guarantees the price action will be all noise and virtually no signal.

If you think I’m exaggerating, consider that in addition to payrolls, JOLTS, ADP, claims, PCE and Powell, markets will also contend with Conference Board confidence, the final read on third quarter GDP, ISM manufacturing, updates on the major national home price gauges, pending home sales, Beige Book, a smattering of lesser data and speaking engagements from Williams, Bullard, Cook, Bowman, Logan and Evans.

Forgive me, but that’s absurd. It’s impossible for carbon-based lifeforms to process all of that in real-time and incorporate it into asset prices, particularly when they (human traders) are competing with, and being bombarded by, false signals from their mechanized, unemotional counterparts.

I wish you luck.