A few takeaways from this morning’s payroll report:
- Payroll employment with revisions increased +368k……still hot
- Household employment increased +320k……still hot
- Unemployment rate held at 3.6%…..near generational lows
Nothing in this data is going to change the Fed from hiking rates 50bps 2x-3x over the course of the summer. 2x feels too little, 3x feels too much. I think the Fed probably does 2x 50bps hikes and then revert back to a 25bps hike. We shall see. The Fed is still behind with regards to inflation and market expectations. The bond market has already hiked rates for them – the 2Y UST at 2.65% says so. Financial conditions have already tightened. A volatile, sloppy stock market says so.
As financial conditions have tightened and demand is starting to soften, it’s interesting to see that the one weak spot in the labor report is in average hourly wages. AHE came in below estimates this morning and appears to have peaked already. Demand needs to peak first, then inflation for the overall market to get back to regularly scheduled programming of a soft landing supported by earnings growth. Labor demand softening – average hourly earnings data says so.
Richard Barrett
Chief Investment Officer
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