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Oct 07

Decent labor report = “bad news”

  • October 7, 2022
  • CWM Investment Team
  • Richard Barrett

This morning’s non-farm payroll report might have noted the weakest gain since April 2021 but there’s not enough damage in the labor market yet to cause the Fed to “pause”.  +263k new jobs was in line with market expectations. Another +75bps hike in Fed funds rates in early November is now a mortal lock bet.  December will be the moment of truth – there’s lots of demand destruction going on in the economy and two months from now the Fed will likely be thinking about becoming less aggressive. As we stand now, “good news” is “bad news”…and there’s not enough bad in today’s labor report to cause the Fed to change course.

Market inflation expectations are coming down and coming down fast. Six months ago, five year forward inflation breakevens were close to 4%, today they have come down to 2.35%. The Fed must like this path and will likely concede that inflation is back under control when it hits 2%. That might be a few months from now.

Gasoline at the pump lower, housing starts slower, inflation coming down. The last thing that needs to crack is labor. This week noted a material decline in job openings, an increase in initial unemployment claims, and a softening in average hourly earnings (albeit hours worked are up). Labor weakness is underway – we just need one or two bad labor reports to get the Fed to change direction.

Source:  EISI as of October 7, 2022

Richard Barrett
Chief Investment Officer


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    © Congress Wealth Advisor Solutions
    Congress Wealth Advisor Solutions (CWAS) is a division of Congress Wealth Management, LLC (CWM), which is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. For additional information, please visit the Investment Adviser Public Disclosure website by searching with CWM's CRD #310873. Investment Advisory services are offered and rendered through CWM. CWM acquired Pinnacle Advisory Group, Inc. (Pinnacle) on April 30, 2021.