(Bloomberg) — The latest US jobs report doused nascent optimism that the American economy was weakening enough to warrant a go-slower approach by the Federal Reserve in its battle against inflation.
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Hiring topped estimates and wage growth accelerated more than expected last month, upending expectations that had built across Wall Street in recent weeks. Futures on the S&P 500 tumbled, the dollar surged and Treasury yields spiked higher.
“Earnings double expectations is a problem,” Bryce Doty, senior vice president at Sit Investment Associates, said.
Here’s what Wall Street was saying:
Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors LLC:
Seems like it should be a bad print for markets. The headline figure was strong and there are clearly persistent wage pressures, but the internals and leading components were pretty weak. That suggests that the Fed can’t really ease up too much, but growth continues to deteriorate.
Victoria Greene, founding partner and chief investment officer at G Squared Private Wealth.
The jobs add was a bit of a shock. A bit of a surprise since there have been so many announced tech layoffs and hiring freezes. This, of course, means Fed can remain fully focused on inflation.
Jay Hatfield, chief executive officer at Infrastructure Capital Advisors:
Definitely a strong job report. That is about what I would have expected … We believe, however, that the money supply decline of 17% resulting in a very strong dollar, high mortgage rates, and plummeting commodity prices. We expect inflation to decline rapidly despite the strong labor market as there is a 5% bleed through of energy to core. For example, airline fares are heavily dependent of oil prices.
Mike Bailey, director of research at FBB Capital Partners:
This is exactly the wrong report at the wrong time. Investors started getting comfortable after Powell’s remarks on Wednesday that we had a favorable glide path to year end. However, today’s hot jobs number puts a pin in that balloon. To be fair, my sense is investors and the Fed will pay much closer attention to the next inflation (CPI) data point that comes just before the Fed’s rate decision.
Seema Shah, chief global strategist at Principal Asset Management:
To have 263,000 jobs added even after policy rates have been raised by some 350 basis points is no joke. The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates. It will not have gone unnoticed by Fed officials that average hourly earnings have steadily strengthened over the past three months, exceeding all expectations, and the absolute wrong direction to what they are hoping for.
Yes, it’s good that the US labor market is so robust. But it’s awfully concerning that wage pressures are continuing to build. Powell himself said earlier this week that wage growth will be key to understanding the future evolution of core inflation. So, what is there in this jobs report to convince them not to take policy rates above 5%?
Scott Ladner, chief investment officer at Horizon Investments:
There’s only 1 way out of this (*in the Fed’s framework*) and that is to continue to set policy to crush the demand side, but we haven’t seen any progress on that front yet. This makes a policy mistake from the Fed almost a certainty, if it wasn’t already.
Cliff Hodge, chief investment officer for Cornerstone Financial:
While the headline payrolls number was strong, the wage data is going to be eye-popping for the Fed. The 0.6% month-over-month wage growth number matched the highest level all year. Higher wages feed into higher inflation, which will no doubt keep pressure on the Fed and should increase expectations for the terminal rate.
We got no help from the participation rate, which continues to move in the wrong direction and will keep competition for labor high until the economy inevitably rolls over sometime next year.
Peter Tchir, head of macro strategy at Academy Securities:
The big news is earnings! Last month was up 0.5% instead of original 0.4% and this month was up a whopping 0.6% (versus 0.3% expected). Fed will not like that.
Dennis DeBusschere, founder of 22V Research:
Very strong … very — and at odds with everything else we have seen on the labor side. Everyone was asking about bad economic growth being bad for markets going in — don’t have to worry about that today. This was too strong and is bad for risk assets. We don’t think this changes the outlook for economic growth at all. It is clearly slowing and will continue to do so. The risk is we have more S&P 500 declines/financial conditions to ensure that a slowdown happens.
–With assistance from Emily Graffeo and Peyton Forte.
(Updates with comments from Ladner and Hodge)
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