The US economy added 336,000 jobs last month, the most anticipated labor market report of 2023 showed.
It was a blockbuster print of almost epic proportions. 336,000 topped every estimate and nearly doubled the whisper number, which rose in the days leading up to the release.
The range of estimates from more than six-dozen economists surveyed was 90,000 to 250,000. So, even the most bullish forecaster was 86,000 short.
The big headline beat had the potential to fan the flames of the worst long-end US bond selloff in a generation. The report was billed as a make or break moment for a bond market on knife edge.
The Fed last month preserved the option to raise rates again in 2023 should the data make the case. Recent labor market figures, including a three-week run of very low jobless claims headlines and a big jump in job vacancies suggest demand is still robust, which means policymakers will remain reluctant to call an end to the most aggressive rate-hiking cycle since Paul Volcker famously exorcised an inflation-possessed US economy four decades ago.
Notably, the headline prints from both July and August were revised higher. Previously, headline revisions were negative every month this year. The upward revisions which accompanied the September report were emphatic: Together, they added 119,000 to the prior two months’ headlines.
Not to put too fine a point on it, but the appearance of decelerating labor market momentum was just revised away. Although the downtrend versus the wildly distorted pace witnessed in the aftermath of the pandemic is obviously intact, the most recent slowing was, apparently, an illusion. To be fair, even the pre-revised figures showed momentum picking back up from June to August, so maybe we should’ve expected this.
June’s low print now stands as an anomaly in 2023. The three-month average is 266,000 after Friday’s release. That’s probably (read: Definitely) too brisk to be consistent with price stability in the current environment.
Private payrolls rose 263,000, triple the ADP print. Manufacturing payrolls tripled estimates, rising 17,000, while leisure and hospitality added 96,000 jobs.
There were some silver linings for the “bad news is good news” crowd, which at this point is synonymous with bleeding bond bulls. The change in the household survey was a more pedestrian 86,000. And the jobless rate actually stuck at 3.8%. That’s still very (very) low historically, but consensus expected a tick down to 3.7%. The participation rate was unchanged, though.
Mercifully, average hourly earnings actually undershot expectations, rising 0.2% MoM, and 4.2% YoY. Consensus was looking for 0.3% and 4.3%, respectively.
From the perspective of everyday people, robust hiring and 4% annual wage growth against 3% headline inflation is a pretty favorable conjuncture, but absent outright deflation, the price increases across most goods and services witnessed since early 2021 will remain in the price. (So, 40% pay increases or strikes. It’s your choice, management.)
Plainly, the blowout headline NFP print and the upward revisions argued in favor of the Fed’s “higher-for-longer” narrative, and the odds of a November rate hike are now higher. In addition, the long-end bond selloff has an excuse to extend, doling out more pain, and the dollar likewise has an excuse to run even further.
Of course, that could all succumb to a “sell the news” dynamic (or “buy the news” in the case of bonds). But 336,000 with meaningful upward revisions is a pretty high bar to clear when it comes to fading an NFP release.
There’s some speculation that this could be the last of the good jobs numbers. If that’s the case, they went out with a blaze of glory.
So if the Fed can’t squash demand enough to control inflation (although it feels like the Fed members might be having conversations using words such as “these go to 6!!”) then elected leaders might actually have to do something to increase supply (oil/housing might be at the top of the list).
Perhaps interest rate hikes are the wrong tool? “Apply more leeches!”
I feel compelled to offer the usual fatalistic reminder to everyone: There isn’t anything anybody can “do” about this situation because it’s not something that anybody has any control over. We’re talking about the economic decisions of 300 million people (employers, employees, consumers) in a $23 trillion economy. This, like inflation, is just going to do whatever it’s going to do, and all we can do is sit back and watch it. Do you think about the ramifications of your daily decisions for next month’s NFP or CPI reports? No? Neither does anybody else, which is why this is mostly random.
I mean, sure, if you raise rates to 30%, you can curb demand, but even then, there’s going to be somebody out there who needs — you know, whatever — a used Honda Civic or a new TV or whatever else, and nothing’s going to stop them unless they die on the way to the dealership or the Best Buy. When you kind of step back and ask yourself, “Are the conditions onerous enough to make a dent in that decision calculus?” the answer is clearly “no.” If you really wanted to exert something like real, dictionary-definition-style “control” over the situation, you’d have to say, “Listen, for the next 12 months, the prime rate is 65%. You wanna finance something? Go try. Give it a shot and let us know how it goes. There’s going to be a depression now. We’re sorry. The next FOMC meeting is in six months, when inflation is expected to be negative 20%. Best of luck. ” Everything else is just tinkering and hoping.
Can’t argue with that, sir!
The other option is to elect a Republican to the White House in 2024 and give the GOP majorities in the House and Senate and let them drive the economy into a deep recession. The GOP is good at that.
Feddling while Rome burns?
Good one!