Weekly Market Update: September 12, 2022
U.S. nonfarm payrolls increased by 315,000 in August. That figure exceeded the consensus expectation by about 5%. The newest gains brought the estimated total of jobs created over the first eight months of this year to just over 3.5 million. This indicates a still durable, indeed tight labor market.
The solid jobs formation comes as the Federal Reserve tries to slow down the pace of wage growth as part of its attempt to fight inflation. There were some signs that the Fed’s more-restrictive monetary policies are starting to work. The average hourly wage increased 0.3% last month, which was slightly below the expectation of +0.4%. Wage growth over the 12-month period also came in below expectations. This, along with a sharp increase in the labor participation rate (the labor force divided by the total working-age population), may put further downward pressure on wage infla- tion in coming months. That said...
The latest jobs report did not change the narrative that the central bank will remain hawkish on the monetary policy front. As of press time, the consensus was calling for another three-quarter-point hike to the benchmark short-term interest rate at the late-September Federal Open Market Committee (FOMC) meeting. However, this remains a highly fluid situation, and the Fed will get new readings on inflation before its next policy decision, including August consumer and producer (wholesale) pricing data.
Meanwhile, concerns about a recession are not going away. The Treasury securities market yield curve remains inverted, which often foreshadows a recession. A period of stagflation, which is when slowing economic growth and a rise in unemployment occur at the same time as high inflation, also can’t be ruled out. The nation’s unemployment rate inched up last month, from 3.5% to 3.7%.
Conclusion: Concerns about the Federal Reserve tightening the monetary reins too hard into a period of slowing growth have brought more worries on Wall Street about a hard landing for the U.S. economy.