It All Comes Down to Jobs and Prices

Just as Covid was at first viewed as a minor threat -- before it corned much the world's population inside their bedrooms, inflation -- that once supposedly transitory growing pain -- has now transformed into the beast that's raging out of control. The battle over higher prices is on, and it's political as well as economic, and it has implications not only for the health of the nation, but the well being of all Americans. Here's my take on that fight, as well as the related upcoming jobs report. First, we just came out of the Wednesday meeting with President Joe Biden, Treasury Secretary Janet Yellen and Fed Chief Jerome Powell. We can be sure that even with the independent Fed, public messaging will be hard to ignore. The political winds are strong against inflation. As we've seen with Yellen and Biden, I expect we see more Fed speakers hammer home their inflation-fighting mandate. They will undo some of the perceived softness that seemed to emerge after the release of Fed meeting minutes last week. Federal Reserve Gov. Christopher Waller and Lael Brainard, vice chair of the Fed's board of governors, already made their cases. Other Fed officials spoke, too. We'll hear more. Next in this shortened week is the jobs report. Non-farm payroll data comes out Friday. Here is how I am looking at the data: No. 1, I'll keep a close watch of the headline number and revisions. Any signs that employment is slowing could be dangerous. Earnings calls have already proved a bit of a red flag. In the past several weeks, we have seen companies question their current levels of employment. I think that anecdotal reporting is too early to hit this month's data, but we could see a surprise to the downside. Be ready. No. 2: Hours worked is a number to watch. I think any job weakness will show up in this number, rather than the headline one. Weakness in the future is often indicated by declines in average hours worked. Third, wages are critical. Expect wage pressures to remain high. The worst case for markets would be weakness on jobs, but upward pressure in inflation. Finally, No. 4, I'll be looking at the participation rate. Seeing participation rate tick higher would be a positive. More employees coming to the market would alleviate concerns about pay pressures. More workers coming in should reduce demand for fatter checks. If, at this stage, we aren't seeing labor-force participation move higher, it is going to stoke inflation fears and leave a lot of head scratching, as to why workers aren't returning. I'm hopeful here, but am dubious. As for what you read in the headlines, I am betting it will be labeled as a bad report: More inflation pressures with weakening jobs data. A few weeks ago, I would have said that leads to lower bond yields that might, at the end of the day, help stocks. Stocks, especially big-tech ones, seemed to care more about direction of yields than the direction of the economy Right now, think we'd see a risk off move where long-end yields go lower, despite Fed hawkishness, and stocks fall on earnings concerns. I'm still looking to buy dips, but let's see how the Fed and the data play out tomorrow. Look here for my comments after the numbers land.

It All Comes Down to Jobs and Prices

As the battle against inflation rages on, we're now up against Friday's jobs report. Here's my take on both.

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