This morning, the attention of Wall Street is on the labor market. At 8:30 A.M. (EST), the Labor Department reported that nonfarm payrolls for December totaled 223,000, which was a decline from the previous month’s figure, but above the consensus expectation of 200,000. The unemployment rate fell to 3.5% from 3.7%.
Digging deeper into the December jobs report, the average hourly wage increased 0.3%, which was below the revised November gain of 0.4% and maybe, along with a 4.6% increase in the figure over the last 12 months (down from 5.0% in November) were signs that wage inflation is starting to ease a bit. The labor participation rate also rose to 62.3, the highest mark since August, which suggests more people are in the market for employment, and the bigger pool of people looking for work could put further downward pressure on wages in the coming months. The equity futures, which were in a holding pattern around the neutral line heading into the much-anticipated jobs report, are now suggesting a nicely higher opening to the trading day stateside.
The stock market was under selling pressure yesterday, with two events before the start of the session weighing on stocks. Before the open, Kansas City Fed President Esther George echoed what Fed officials have been saying for months, which is that the federal funds rate will need to go above the 5.00% mark—maybe considerably above—and stay at that level for an extended stretch to effectively fight inflation. Ms. George also said that the Fed is not inclined to lower rates before 2024 and that the market’s expectation late last year for some pivot in 2023 is not likely.
The hawkish commentary, along with strong private-sector job gains (Automatic Data Processing said private payrolls climbed by a much-better-than-anticipated 235,000), put upward pressure on Treasury market yields and the value of the U.S. dollar against a basket of international currencies. And similar to what we saw throughout 2022, equities sold off sharply, with the most damage taking place in the higher-growth technology sector. The technology-dominated NASDAQ 100 is on a five-week losing streak and trading 35% off of its record high.
Turning back to today’s employment data, the figures suggest that the Federal Reserve’s task to slow wage growth is starting to work. However, with the rate of increase in the average hourly wage easing, and now running below the pace of inflation for goods and services, it may start to put further pressure on household budgets and lead to tougher economic times ahead for the consumer. Meantime, the price of oil is off to its worst start to a new year in three decades. That, along with the continued inversion of the Treasury market yield curve, often suggests the economy is headed toward a period of recession. Given these concerns, the more-defensive sectors, including the consumer staples and healthcare issues have been in demand in recent weeks. Likewise, the price of gold, which is viewed as a safe-haven investment, is on a four-week winning streak.
At 10:00 A.M. (EST), we will get data on nonmanufacturing activity from the Institute for Supply Management, a trade group, and a report on factory orders. Those two reports will give further insight about the overall health of the U.S. economy. Investors also should note that several Federal Reserve regional Presidents will be speaking on monetary policy, which could potentially have an impact on trading as the session progresses. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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