The latest jobs data underwhelmed as the Labor Department reported that while unemployment is still at a generationally low 3.7 percent, job creation in November missed expectations by over 40,000. Will a data-fueled Fed give pause to a December rate hike given the latest employment numbers?
A Dow Jones survey of economists forecasted an increase of 198,000 nonfarm payrolls, but came in at 155,000. Average hourly earnings, a key metric of gauging inflation, increased by 3.1 percent compared to a year ago.
“I think today’s number has more to say about the inability of businesses to fill open positions than any weakness in the economy,” said Mark Zandi, chief economist for Moody’s Analytics. “Going forward, we’re likely to have a combination of slowing job growth and accelerating wage growth.”
The increase in wages despite the decrease in jobs has been the norm for much of 2018–fodder for the Fed to continue its hawkishness.
“Wage growth has been really solid in 2018… and is ending the year in a very strong place,” said Andrew Chamberlain, chief economist at Glassdoor.
The markets responded in the red to the latest jobs report as the Dow Jones Industrial Average fell over 400 points as of 12:45 p.m. ET.
The Federal Reserve, who said its next interest rate decision slated for later this month will be heavily dependent on data, could interpret the latest decline in nonfarm payrolls as a factor in pausing its rate-hiking policy. The Fed has been exhibiting signs of dovishness as of late.
However, inflation numbers could change that, such as the latest increase in wages.
“Much of our work shows that wage inflation tends to lead other kinds of inflation,” said Sameer Samana, a global investment and technical strategist for the Wells Fargo investment Institute.
“I think if you did get a number above 3.3 percent (wage growth), markets would probably start to worry a little bit more about a more hawkish Fed,” Samana added. “From that standpoint, it would put the Fed on notice (that) things are starting to overheat at the margin.”
Meanwhile, U.S. equities have been a paragon of volatility as of late with the Dow whipsawing investors on Thursday with a decline of 785 points before erasing the losses to settle for a decline of just under 80 points. Through Thursday, the Dow and S&P 500 have both shed 2.3 percent, while the Nasdaq has fallen just under 2 percent.
“You’ve gone from a period of zero sensitivity to headlines to a period of hypersensitivity,” said James Athey, senior investment manager at Aberdeen Standard Investments. “We’re now in a world where no one knows which way is up and which way is down.”
CME Group’s FedWatch algorithm now shows a 76.6% chance of a rate hike in December after showing a 100% probability less than a week ago.
Related: The Doves Are Circling Above a December Rate Hike
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