In many ways the jobs data was "perfect" for markets. Well, at least the data would have been perfect a few months ago, before the Fed made it so clear it wanted to drive unemployment rates higher.
As you'll see in the numbers below, the jobs report should be positive for stocks and bonds, as jobs continue to be a strength for this economy, as growth is strong but slowing. And, even in these times, the slowing in wage pressures should be something the Fed takes into account, especially give all the other data coming in, such as for new vehicles and manufacturing. But the problem is that the Fed may choose to focus on the unemployment rate, and decide that that matters most, so what should be a "goldilocks" type of rally ... well, we'll see. ...
But who are we to argue with the Fed?
Let's get into the numbers. Jobs increased at 223,000 in the "Establishment" survey, with only 28,000 of downward revisions on the past two reports. That's very good job growth.
Unemployment dropped to 3.5%, which is the "wrong" direction for the Fed. That drop occurred even with labor force participation creeping higher (from 62.1% to 62.3%). The improvement in the unemployment rate was because the "Household Survey" added 717,000 jobs, closing some of the year to date gap between the Household and Establishment surveys.
On the other hand, wage increases slowed dramatically. Last month's 0.6% was revised down to 0.4% and this month came in at 0.3% (last 2 months, annualized is 4.2%, so getting to where the Fed would want it to be). This is consistent with some verbiage that ADP included on slowing wage growth.
One slightly weird thing was that on what was generally a robust report, weekly hours declined a bit from 34.4 to 34.3, which isn't much, but is the wrong direction for a strong report. This, in the old days of last quarter, would have been a good sign as it should temper the Fed.
Jobs remain strong, but wage growth is slowing. This is assuming we can take any of the numbers at face value given seasonal adjustments, regular adjustments in an irregular economy, survey participation rates, which have been extremely low.
Jobs Vs. Everything Else
All week we see "good" jobs data. The Job Openings and Labor Turnover Survey survey was impressive, ADP was good, and unemployment claims were low. But then we have all the other data point downward -- such as the Institute for Supply Management's manufacturing report (48.4 with prices paid down to 39.4); total vehicle sales (13.3 million annual rate from 14 million last month); global services and composite PMI (44.7 and 45); and Friday's ISM Services numbers (49.6, which is a contraction vs. expectations of 55). This one is important, since services are everyone else's big bet, and I strongly think, just like goods last year, the pent up demand is being used up and will not be the basis for ongoing services spending. Factory orders were supposed to be 1% last month (revised down to 0.4%) and down 1% this month (actual of -1.8%). That meshes with ISM Services new orders number at 45.2.
If the Fed looks at only unemployment rate, then it can remain hawkish, but away from that, the Fed should be more concerned about the trajectory (dropping rapidly) and thinking about creating a softish landing, rather than further piling on.
With December consumer price index out next Thursday, I think we can finally get the "Christmas" rally that I've been waiting for. Great opportunity to reduce risk as those who got to bearish start to chase.
A Note on Russia
On a separate note, the Geopolitical Intelligence Group that I work with at Academy Securities downplays the holiday ceasefire as it is relatively "normal" for countries to do that, and they suspect that Russia's Vladimir Putin will use the time to resupply and prepare for another offensive -- though the Ukrainians will also use the time for the same.
