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Though I’ve said it many times before, wage growth is all that matters now. We had the big Non Farm Payroll number last Friday. Hiring in the USA shocked to the upside by rising 223K and unemployment surprised to the downside along with wage growth. Average hourly earnings rose by 0.27% month-on-month and 4.59% year-on-year back to its lowest levels since mid-2021.
By sectors, payroll growth mimicked the distribution in other reports over the prior week to a certain extent, with the bulk of hiring occurring in the private sector. Although it was Education and Health services that paced gains with an increase of 78,000, travel and Leisure also added 74,400 workers. Goods producing industries also generated strong jobs growth to the tune of 40,000, led by 28,000 in construction. Hiring in professional and business services on the other hand remained weak at -6,000. Average weekly hours had ticked lower from 34.4 hours to 34.3.
In my opinion, the overall data was mixed to slightly bullish. I don’t think it will persuade the Fed to stop hiking, but it will give them one of the 2-3 data points to slow down or hold the hike size in place. They might reduce the pace of hikes if we get another data like this paired with CPI this week moving lower. I definitely continue to expect a weaker labor market ahead and that should push wage growth even lower.
We are clearly driving lower in goods inflation (CPI), and it looks like Wage inflation (NFP Average hourly earnings) has also started moving lower. We are getting closer to the bottom if this trend continues for risk assets and for the Fed to hold off on hiking further or potentially pivot eventually if the unemployment rate climbs up.
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