While this week’s Federal Reserve interest rate decision was the main event, October’s labor market data was the encore. And unfortunately, neither was good news for investors. 🤢
As we’ve discussed regularly, the Federal Reserve is trying to crush demand enough to cool the labor market and housing so that record-high inflation decreases. 🥵
So far, housing has softened, and prices have begun to come down marginally. However, the labor market remains resilient. There was a slight jolt in the data last month, but October’s numbers were pretty darn good.
Let’s summarize it all:
- The September JOLTs report showed employment postings rose to 10.72 million, meaning there are 1.9 job openings for every available worker;
- The October ADP Private payrolls report showed 239k jobs were added, with wages increasing by 7.7% YoY;
- Thursday’s initial/continuing jobless claims report showed that both measures continue to hover near historic lows; and
- The October nonfarm payrolls report showed 261k jobs were added, with average hourly earnings rising 0.4% MoM and 4.7% YoY. The unemployment rate also ticked up to 3.7%, while the labor force participation rate declined by 0.1% to 62.2%.
- September’s job number was also revised higher by 52,000 and August’s revised lower by 23,000, for a net positive revision of 29,000.
The summary above indicates that the labor market is still historically strong despite the Fed’s efforts. The Fed knows that its policies will take time to work through the economy and into the data. That’s partially why it changed its language this week to acknowledge that rates will have to stay higher for longer. 📆
Within that data, we also see the service industry continuing to be the primary source of labor demand. Meanwhile, technology, management, and other general business jobs have ticked down. That data very much jives with the “tale of two labor markets” narrative we’ve been covering.
Layoffs in tech, real estate, and other industries that overexpanded during covid get all the headlines. But in the real economy, there’s still a lot of labor demand. And reducing that demand is not going to happen overnight.
So, for now, the tightening continues. And growth stocks and other risk assets are responding accordingly. 😨