Latest / Markets with Megan: A Quick Financial Markets Update / Interpreting Subtle Shifts in Employment Data | Episode 088 | 01-05-24

Transcript

Interpreting Subtle Shifts in Employment Data | Episode 088 | 01-05-24 · Markets with Megan: A Quick Financial Markets Update

• 0:01
  Megan Horneman: Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with our regular segment of Markets with Megan, and we want to talk about the jobs report that we got today.
• 0:12
  Megan Horneman: At first glance it looks like a great report.
• 0:15
  Megan Horneman: We created more jobs than expected 216,000 jobs.
• 0:19
  Megan Horneman: In December the estimate was 175,000 jobs.
• 0:22
  Megan Horneman: That's great.
• 0:23
  Megan Horneman: But when you look at a lot of the underlying trends in this report it's showing this is kind of cooling in the labor market.
• 0:31
  Megan Horneman: So let's dig into what we saw.
• 0:33
  Megan Horneman: The unemployment rate was unchanged at 3.7%.
• 0:36
  Megan Horneman: The average hourly earnings they actually rose more than expected and on a year-over-year basis they're rising 4.1% the work week.
• 0:46
  Megan Horneman: So the number of hours that were worked that declined.
• 0:49
  Megan Horneman: And then the labor force participation actually retreated and declined as well.
• 0:53
  Megan Horneman: Now, looking in this report, when you look at the household survey, employment dropped by 683,000.
• 1:01
  Megan Horneman: This is the largest drop we've seen since April of 2020.
• 1:06
  Megan Horneman: Some of the things that we look at that tend to occur first, before you start to see layoffs or the unemployment rate rise, are things like the work week we mentioned that declined, the temporary workers, more people working part-time instead of full-time for economic reasons.
• 1:23
  Megan Horneman: These things all started to show signs of weakness in the labor market.
• 1:28
  Megan Horneman: When you look at what the Fed's going to take from this report, I think they'll be concerned about that rise in average hourly earnings.
• 1:36
  Megan Horneman: That's that sticky inflation, that wage inflation that we've discussed.
• 1:40
  Megan Horneman: But we are starting to see signs that the weaknesses is emerging in the labor market.
• 1:45
  Megan Horneman: This should help ultimately keep that wage pressures in check.
• 1:50
  Megan Horneman: We don't think that the Fed's going to be raising interest rates in March.
• 1:53
  Megan Horneman: Sorry, cutting interest rates in March.
• 1:55
  Megan Horneman: This is the consensus view.
• 1:56
  Megan Horneman: This report does not say that that's going to happen.
• 2:00
  Megan Horneman: And then when you look at what the market's reacting today, equity markets are rallying, bond yields are down.
• 2:08
  Megan Horneman: It's not because of the employment report.
• 2:09
  Megan Horneman: It's actually because of the report we got after that on the service side of the economy ISM services.
• 2:15
  Megan Horneman: So this is where we spend the majority of our money on services, not necessarily goods.
• 2:20
  Megan Horneman: This has been really a strength that we've seen all through last year and what you're seeing is this index actually is pretty close to contracting.
• 2:29
  Megan Horneman: That level below 50 means that services is contracting.
• 2:33
  Megan Horneman: We're very close to that.
• 2:35
  Megan Horneman: But the biggest part of this report was the employment component.
• 2:38
  Megan Horneman: That actually fell the most on a monthly basis that we've seen since April of 2020.
• 2:45
  Megan Horneman: And it is deeply in contraction territory.
• 2:47
  Megan Horneman: The other side of this the Fed's going to take a look at is the prices paid component.
• 2:53
  Megan Horneman: This is inflation in services.
• 2:55
  Megan Horneman: This is the highest component of the index.
• 2:58
  Megan Horneman: It did moderate a little bit for the month, but it's the strongest part of this index, which means that the inflation pressures are not completely behind us yet.
• 3:06
  Megan Horneman: That's what the Fed's going to pay attention to, and that confirms our view and our out of consensus view, that the Fed is not going to be cutting rates anytime soon.
• 3:15
  Megan Horneman: That's all we have today.
• 3:17
  Megan Horneman: We'll be back next week with more economic data, and next week we'll get more inflation data for you.
• 3:22
  Megan Horneman: If you have any questions or comments, please feel free to reach out to podcast at verdence dot com.
• 3:26
  Megan Horneman: Thank you.