Pandemic distortions and millions of migrants suddenly entering the labor market, who are hard to track, have wreaked havoc on labor-market data accuracy.
By Wolf Richter for WOLF STREET.
Payrolls at employers rose by 254,000 jobs in September, and the down-revision last month for July was re-revised up a lot, and August was revised higher too, so the three-month average jumped to 186,000 payroll jobs created in September. And the three-month average for August – which had been reported as 116,000 at the time, a scary and sudden deterioration with the revisions that caused so much consternation – was revised up to a half-way decent 140,000.
Turns out, the sudden deterioration of the prior two months were a false alarm. The labor market is just fine, creating a decent but not spectacular number of new jobs, and the unemployment rate dropped for the second month in a row, and wages jumped, and the Fed doesn’t need to cut any further, given the inflation pressures already building up again — though it will likely cut further, though maybe at a slower pace than previously anticipated.
The blue line shows the three-month average of jobs created as reported today. The red segment shows the three-month average as reported a month ago:
Here is the long view, as revised: The three-month average is right in the sweet-spot of the strong labor market in 2018 and 2019.
Clearly, the frenetic pace of hiring after the pandemic is over, and the labor shortages are over. The pace is back to a healthy strong job growth.
This picture matches other data showing that layoffs and discharges remain very low. Companies in aggregate are creating jobs at a decent pace, and they’re hanging on to the employees they’ve got.
Average hourly earnings were also revised higher for August to a hot 5.6% month-to-month annualized, from 4.9%. And in September, they increased by another 4.5% annualized from the upwardly revised August, which caused the three-month average to increase by 4.3%, the highest since January. The three-month average has been increasing steadily since April (red line). This is based on the survey of establishments.
The 12-month increase of average hourly earnings rose to 4.0% in September, and August was revised higher to 3.9% (from 3.8% as reported a month ago). Those two months combined show the fastest acceleration since March 2022, and are well above the peaks of the 2017-2019 period.
So in terms of inflation – and what the Fed has been worrying about – this accelerating wage growth is not going in the right direction anymore.
The headline unemployment rate (U-3) dipped to 4.1%, the second month in a row of declines. 4.1% is historically low, but is up from the period of the labor shortages in 2022. This is based on the survey of households.
The unemployment rate is now below the Fed’s 4.4% median projection for the end of 2024 and for the end of 2025, according to the Fed’s Summary of Economic Projections released at the rate-cut meeting.
The weakening of the labor market that the Fed projected in justifying the 50-basis point cut has reversed, been revised away, or failed to happen.
The unemployment rate is also where the massive influx of immigrants over the past two years – estimated at 6 million in 2022 and 2023 by the Congressional Budget Office – shows up: Those that are looking for a job but have not yet found a job count as unemployed. And their influx into the labor force has caused the unemployment rate to rise from the lows last year.
A rise of the unemployment rate caused by a surge in the supply of labor is a different dynamic than a rise of the unemployment rate caused by job cuts and a reduction in demand for labor, as we would see during a recession:
The number of unemployed people looking for a job fell for the second month in a row, to 6.83 million. The three-month average inched up to 7.04 million.
The unemployment rate (chart above) accounts for the large-scale growth of the population and of the labor force over the decades. This metric here of the number of unemployed does not take into account the growth of the population and the labor force, and over the decades, a growing population and labor force entails a growing number of people looking for a job.
And the bond market woke up.
Upon the news that the labor-market scare last month was a false alarm, and that aggressive rate cuts to save the labor market are not needed, and that wage growth is contributing to general inflation concerns that we have already seen in the Consumer Price Index for August and July, and in what companies have said about raising their prices, and in the pricing power that companies still exert…
Well, upon the news, the bond market woke up, and the 10-year yield jumped by 12 basis points to 3.97% at the moment, the highest since August 8. Since the rate cut, the 10-year Treasury yield has risen by 27 basis points.
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Yeah, this economy is red hot and for some reason an emergency election-bending, I mean economy-boosting crisis level rate cut just had to happen. Well, it’s nice to see the ten-year head back towards 4% on its way to 5 or 6%.
Red hot – all those kids need to work long hours and demand big raises and pay record highs for housing and stocks and everything else – I’ll be happy with my 1990s style interest earnings again.
The tin foil hat part of me wants to believe the employment numbers were manipulated to justify the unnecessary rate cut, but who knows, incompetence is just as likely.
Today’s up-revisions and big Sept number should tell you that your belief was wrong — because it makes the Fed’s sudden 50 basis point cut look silly.
It was a tongue in cheek comment replying to Ol’B “election-bending” description.
But if that is somehow accurate, I doubt they care about looking silly.
so “IF” they cut in Nov, I guess they are keen on being silly for a while….
Do clowns and silliness go hand in hand?
Nah they want the housing market to unlock, that is why the rate cuts are happening. Their goal of wage suppression was accomplished by rate increases and immigration, so now it’s back to housing market inflation.
What wage suppression? Wages are growing at about 2x a “normal” rate.
It’s getting to be more obvious that the Fed seems to be taking their eyes off the ball, inflation, and starting to peak over at interest expense. $1.1T through the 1st 11 months of FY24 suggests that we may come in around $1.2T for the full year.
$7T is rolling over between now & the end of 2025. That’s a lot of pressure on the Fed to lower rates.
By the end of FY 2029, we’ll be close to $45T in debt. If inflation stays hotter than the Fed expects over that period, the Fed may have very little wiggle room to lower rates. In fact, sometime in the next 3-5 months, the Fed may actually have to raise rates.
“Fed seems to be taking their eyes off the ball, inflation, and starting to peak over at interest expense.”
That sentence is fundamentally a self-contradiction. Longer-term interest rates JUMPED today on renewed inflation fears. The 10-year is nearly back to 4%. Longer-term yields have been rising since the big rate cut on inflation fears. Longer-term bond investors are worried that the Fed is walking away from its efforts to push down inflation.
If the Fed is worried about the interest expense, it would keep short-term rates high, in order to push down inflation, which will push down longer-term interest rates, which will lower interest expense.
By cutting its short-term policy rates, it showed that it’s less serious about inflation, and woosh, longer-term rates took off. For bond investors, inflation is a killer.
>For bond investors, inflation is a killer.
In the short-term, inflation seems to be pretty decent for earnings, leaving stocks as a mighty attractive option vs short term paper. At least the real yield is still positive.
Perfectly true perspective. It was definitely a false alarm. There is much much much more than enough money (and will stay so for a very long period of time) in the system that will confidently continue to elevate (or keep elevated) asset prices, wages, inflation and interest rates, while pushing down unemployment and bond prices for years to come. This is the new norm. I think everybody should adapt to it.
Based on market action so far, I think they haven’t quite decided if this is good or bad for the market or fit into good news is bad news type of deal….
No more rate cuts….that’s a nice thought and one hell of a rude awakening for the pumpers, would love to see that…
If the rate cuts were made impossible by legislative fiat, the private sector bankers would get their heads together and figure out another route to getting what they want.
We live in a financial sector world. England has de-industralized and relies solely on the crutch of the City of London’s stock exchange and Lloyd’s of London to maintain its standard of living and import food and goods. America still has some industry (mainly military, it seems), but Wall Street is the economic engine of the 50 states.
The banking elite are listened to very closely by Washington. Hell, whole government departments are led by men from Goldman Sachs. If Washington turned on them, they’d find another way.
I’m rooting for a higher COLA
At this point, every doomer bear is on Prozac and or various narcotic cocktails to help them ignore how perfect this economy is.
The previous period of Vibcession is officially over and anyone who’s still bitching about cumulative inflation impacts, high home prices or anything at all — need to wake up and embrace this moment in the sun — breath in the greasy smell of explosive equities heading to the moon — and embrace the glory of future earnings being revised to roaring twenties excess.
Fabulous doesn’t even partially describe my exuberance!!
50bps should be off the table and I think this is “good news is good news”
Every news is good news and reason for another rally in the markets.
Looks like the market is agreeing with you as it’s starting to turn up…still couple of hours left, let’s see how it will end
According to Austin Goolsbee, the hot jobs report and solid wage growth do not alter the Fed’s calculus for a bunch more rate cuts.
Is this guy a drunk or just a big fan of inflation?
During the course of my life, the current interest rates are actually pretty normal. Not sure why there would be much urgency from the Fed perspective to be lowering them all that fast or at all if the economic situation remains solid. Leaving them be might also help the hanger-onner house sellers come to the realization they need to lower their prices.
Interest rates at this level, and even a quarter or half point lower are still restrictive. Weve got more to go to get to neutral.
Like it or not, expect more cuts in the future unless inflation moves back up.
Yeah, very restrictive. That must be why the economy is booming, the labor market is historically tight, consumers are flush with cash and spending money like it’s going out of style, and stocks and housing and crypto are still well into bubble territory. It’s all that terrible restriction!
Lol! Why? Because long bond prices or 2yr bond prices are low? Maybe they are mispriced. Maybe tbey should be higher? In fact all evidence points in that direction.
Goods prices are expected to have a drop, after a 40% runup in such a short period. Reacting to that normalization in prices like its an actual fall in prices is just goofy. Prices are the one place where the Fed language got it right — transitory.
*Goods* prices are the one place…
Looking at the consumer spending, asset market price rise, low un employment rates, loosest ever financial conditions etc etc, it does not seem the rates were ever restrictive.
In the course of my life, (60 plus years as an adult), I have to say current rates are below normal. 7-8% was the norm for most of it with the occasional double digit number. Only very recently have they been this low.
US unemployment rate still below long term average, unbelievable fed cut rates to begin with. Have a feeling fed was cutting to take pressure off the other central banks of slowing economies in they cant deficit spend like we can. Housing market was just starting to think about coming down to earth.
I understand why they need to “estimate” how many unemployed people are looking for work, but I don’t understand why they need to “estimate” how many people are employed. Can’t the government just look and see how many people paid payroll tax last month? If I want to know how many of my apartments are full I look to at a report and I see who paid (I don’t survey some residents and “estimate” how many units have residents paying rent).
1. As you know, companies file payroll tax forms once per quarter, not once a month.
2. That’s only people on W-2s. Does not include contractors that companies also employ.
There are many other complications in trying to count the number of nonfarm payrolls in this vast, complex, decentralized economy. People always want a simple answer, but that just doesn’t work.
@Wolf thanks for the answer, believe it or not I didn’t know that “companies file payroll tax forms once per quarter, not once a month” in my 20 years as a W-2 employee I had taxes deducted from every paycheck twice a month and I assumed that the money was sent of to the government by the payroll firm. I pay my own taxes once a quarter, but I have never had any “employees” (my apartment resident managers are all employees of my third party management firms). Years ago a sucessful apartment investor told me “two things I with I did earlier on after I started buying apartments is 1. not have any employees and 2. not have any reserved parking
The money is sent from the company with each payroll in one big payment to the US Treasury. Form 941 is filed quarterly.
Contractors make quarterly estimated payments, not monthly.
The 10-year remains in an uptrend. I still don’t understand how people assess this inflationary environment.
The forward looking market should be looking at some form of 5 year breakeven. Yet still the 10-year breakeven has not been over 3%, and peaked in March 2022 (the 5-year was 3.6% at the peak) per FRED.
Mr. Market is banking on this unseen recession or the UTubers deflationary depression that is “imminent.”
Mr. Hanke says it’s baked in the cake, because “M2” that the Fed doesn’t look at. I’m thinking that pre WWII era is more comparable than post WWII. Possibly a blend, with (now) Middle East economies literally blown out, Europe and China stuck in neutral and the USD milkshake is also the US economic milkshake?
My Hanke has been so wrong for so long with his M2. His take is M2 is going down and we are in recessionary times. WR has said many times M2 does not matter like inverted Yield Curve.
Bottomline: Economy is red hot.
Hey kids, can you say “Policy error?”
There’s no policy error through the perspective that everything is transitory…
When someone like Komissar Powell and his Politburo wannabes (FOMC) are wrong more often than they are correct, the smart move is to bet against them. After his most recent decision last month, I was thinking about shifting from 3 month T-bills to long-term CDs, but took my own advice and waited. I will be doing 1 month T-bills henceforth, and look forward to the Komissar’s next decision (if any), so I can adjust my strategy to do the opposite if needed.
If you had shifted to long-term CDs back in the summer, you’d be making higher yields than anyone else right now. Because you stayed out of duration, you’re now chasing yields down.
Don’t fight the Fed.
Long term yields like the ten year have been trending up since the panic cut and are almost back over 4% now. The low in rates and mortgages post-pandemic might have been a couple months ago and with this red-hot employment number they could only be heading higher from here. A good economy like they tell us we’re having should be able to handle 5-6% ten years and 7-8% mortgages.
The daily measure of the 30-year mortgage rate jumped 27 basis points today to 6.53%, up from 6.11% before the rate cut.
@Wolf,
Well, at least *something* smart happened today.
Thurd2 – Putting aside any feelings for or against the Fed, I agree with your strategy of moving to short-term 1-month Treasury bills. Here’s why:
– The Fed doesn’t set all interest rates. The fed sets the Federal Funds Rate, which is the rate banks charge each other for short-term loans to meet their reserve requirements. There are many other interest rates, and they are determined by the market.
– The Fed does influence market interest rates massively via the money supply. An increase in the money supply raises the inflation rate, all other things equal. An increase in inflation raises interest rates because lenders want to be compensated for future inflation when they make a loan.
– The other major influence on market interest rates is real growth. The higher the real growth in the economy, the higher the rate of interest lenders can charge the borrowers who are making that growth happen.
– So, together, the rate of inflation and the rate of real growth are, I believe, the main drivers of interest rates set by “the market” where the market is the vast number of lenders and borrowers coming to agreement on interest rates, one transaction at a time.
– I believe that the inflation rate over the next few years will remain stubbornly higher than the 2% that the Fed claims to target. I also believe that the U.S. economy is packed with outstanding businesses that will continue to deliver outsized real growth.
– Put those two beliefs together, and you conclude that interest rates are too low right now and that the market will push them to higher levels. They will increase due to both inflation and real growth.
– Here’s the punchline: If everything I have said is true, then right now you want to put the cash dollars in your risk-free bucket into the place where returns are best and where you have the most liquidity: 1-month Treasury bills. That way you can reinvest the Treasury bills into higher rates of return each month as the market adjust interest rates upwards.
The usual caveats apply. I’m not an expert, but I do want to invest wisely, so I invite *constructive* criticism.
“I also believe that the U.S. economy is packed with outstanding businesses that will continue to deliver outsized real growth.”
If above is true then better to put money in stock market then in cash.
If you look at the history, 90% of the time Fed is wrong.
No more rate cuts needed? No rate cuts were needed.
I had to park some money this week and did a short-term T-bill as I assume rates are not going down further, and maybe even up in the next year, and I assumed I can fine a better deal in a few months instead of locking in. I was never convinced inflation was gone, and thought the Fed should have just sat tight. No matter the election outcome, the fire hose of government spending will not abate, putting pressure on both money supply and and need for government borrowing.
“OK, Forget it, False Alarm, Labor Market Is Fine, Bad Stuff Last Month Was Revised Away, Wages Jumped. No More Rate Cuts Needed?“
Best headline ever. Drop the mic.
The 62% ILA wage increase is certainly an eyeopener…for a one day day strike . Unions like longshoreman, police, firemen, other essential workers are always the warning shot for economy wide upward wage pressure.
Maybe it’s not quite in line with the thread guidelines Wolf, but the 50% cut walks, looks and talks like a political move. 25%…perhaps….50%…no way.
Real estate…
I still see no way those 66% home owners move on from sub 5% loans and here in Hawaii folks seem to have adjusted to the new price levels. Higher wages will certainly help them eventually purchase…
and
“The Food and Agriculture Organization of the United Nations’ Food Price Index, which tracks the international prices of a basket of globally traded food, averaged 124.4 in September, up 3% from August and 2.1% higher versus the same month one year ago.”
The yield dip in the 4 week Bill is over
I hope I’m wrong to get a 1972 kind of feeling (as in, political moves, with inflation not solved). Oil shock on the way??
Keep cutting. Arthur Burns Redux
MW: Larry Summers says the Fed’s half-point rate cut was a mistake
The recent 50 basis point rate cut was the most reckless move by the FED in history. Jerome Powell should have been removed long ago. He is a danger to the US.
The Fed cut reminds me of that funny commercial in which the kids running from the psycho look at the shed with chain saws and scythes hanging all over the place place and say: “We’ll be safe there!”
Oh, he’ll get his comeuppance soon enough. Patience. Let’s see how he likes eating a 9% CPI print next year. I suggest he’ll eat his rate cuts, too.
In a just world, of course Powell (and the rest of the FOMC) should have been removed and replaced with people who have something resembling competence.
But in the real world, if Powell had been removed at any point in his tenure as Fed chair by either of the presidents he served under, the replacements would have been worse, not better.
If these numbers are real, than the Fed are either buffoons or they are guilty of trying to tilt the election.
The 50 point rate cut was ridiculous. If any cut was needed, then 25 would have been adequate. None of the “data” Komissar Powell says he relies on suggested any cut was needed. Therefore one can only conclude the Komissar’s decision was based on other factors. Powell wants to keep his job, and Trump has indicated he will fire him. The Democrats in power said they wanted lower rates. Senator Warren sent the Fed a letter suggesting a 75 point cut. Do the math. I know Wolf does not like politics, but really what was Komissar Powell’s motivation? Keeping ones job in DC includes factors that are both economic and political. Mortgage rates (as Wolf pointed out) and the long bond market suggest Powell was full of you know what. Short-term T-bill rates are creeping back up to nearly 5%.
Welcome to the Twilight zone, Nothing is real, what’s up is really down…
Maybe Uncle Herman really isn’t dead, I’m heading to the graveyard with Aunt Bertha.
Shhh… Little Jeromey might wish us all into the cornyard! Repeat-> “It’s a good thing you did with those fine rate cuts, Jerome. A real good thing!”.
We’re back to Transitory Town? Like a Twilight Zone train that keeps looping?
At what valuation will hedge funds, ETFs, say “Time to take profits and move our money to 4-6% bonds, TBills, foreign markets ?
The big down move won’t come from economic downturn (due to Fed Put) but rather from valuations that cannot be sustained with rosy projections and promises of ever bigger profits.
Would those among us with that downturn calendar date please give me a heads up ?
Well, that will take a while. The 50 bps rate cut has already done its damage.
“The headline unemployment rate (U-3) dipped to 4.1%”
U-3 came in at 4.052% – literally 3bps away from being rounded down to an even 4.0%.
The labor market is fine, but inflation supporters will continue to push for lower rates and other inflationary policies.
It would be a hoot if it drops back to 3.9% over the next few months, with wages rising at a 5%+ pace.
Sounds like a .50 rate hike after the election.
lmao!
It would be a hoot indeed.
“Wage-price spiral? What wage-price spiral? My eyes are closed!”
Just got my six-month auto insurance renewal offer. With no changes to my insured vehicle or my driving record, the six-month increase is 5.8%. Clearly, inflation is vanquished!
It’s almost a u-turn. Forget all the numbers and revisions of the past two years. Look at these new and improved numbers.
Who has some trust left now it turns out they were wrong all the time. Or have we been fooled? And have we been fooled now or in the past?
What direction do we take, now we discovered that our compasses have been of no value at all?
And all this means what to the growing deficit or inflation!
Perhaps all the numbers will be revised again next week and the Fed will be seen as saviors.
The USS Titanic is full steam ahead and me checking on the lifeboats.
To me, it all comes back to the voters, and the dynamics of our democracy today. For politicians, it is impossible to remain in office while (1) taxing responsibly in relation to spending, or even to suggest that, or (2) lowering spending to an other-than-fantasy level. So here we are. I can rearrange deck chairs a tiny bit in my investing choices.
I see inflation as our actual tax, along with tariffs, because anything called a tax will be howled down.
That was true in some measure since the founding of this country, which was in part a big tax revolt.
A perhaps not-so-new fun feature added on top, intensifying this state of mass unreality, is the savior grift in our politics. Somehow star zillionaires are going to save our species and magically transport us to a fantasy past. But for me, the ultimate villain is us, in the aggregate. All I can do is clip my coupons and keep my leverage low!
The Fed is like a hippo in thinning waters. The food is going, but it keeps devouring everything in sight, sucking loan money from the private markets to fund government largesse in general. Every dollar the Fed arranges for the fedgov to have, is a dollar that private industry could have used to develop, modernize… nice work, guys.
There is no competition for money. Rates are dropping, in fact. Your statement applies to a world that no longer exists — one that went away over a decade ago. There is no barrier to money creation in a low rate environment.
So now wage growth rate is almost 3 times higher than the inflation target growth rate, unemployment is at a ridiculously low 4.1%, and the Fed wants to lower rates? Don’t hand them a pistol, because they’re sure to shoot themselves in the foot.
Mr Wolf I love your articles! Always so informative (even thought I need to ask ChatGPT about words I don’t understand)
Have you considered using AI to write your articles? It could free up time for golf….. NVDA to 150!!!!!
Generative AI has been used in publishing for many years. I was approached in 2016 by some outfit that wanted me to try its version. Reuters, Bloomberg, MarketWatch, etc. have all published AI-generated articles for many years, sometimes edited by a human, sometimes not, sometimes disclosed as AI-generated, sometimes not.
Now everyone wants me to use it for a fee, Jetpack (part of WordPress on whose CMS this site runs) wants me to use it to write articles, for a fee. MailChimp, which I use to send the daily emails to subscribers, wants me use its AI (since it got bought by Intuit) to write the headlines for a fee, etc.
Generative AI has already killed many good websites (they’re now bad websites).
Seeking Alpha has an outright prohibition against AI-generated stuff. All contributors have to agree to it.
That said, there is a lot of human-generated BS out there in the media, so AI can replace those humans, no problem, and it’ll cost less and can’t be any worse.
Someday in the near-ish future, I’m going to write an article with this headline:
“If AI Takes Over my Job, I’m Just Going to Walk Out in a Huff.”
I like this fantastic artisanal stuff. But I buy equity in the robot that might devour my job, just in case. Gotta hedge.
Even the data is ziggin and zaggin. Unreal!
Powell has his zoot suit on and is weaving down the alleys. Saturday night will be fun, but after that ….