The trend in the high frequency labor market data remains solid and a supportive factor in the static policy course reiterated by the FOMC again yesterday - although the expectation of lower growth, higher inflation and higher rates seems internally/mandate inconsistent.
Of course, there’s two inputs into the net Hires equation (hirings less firings) and with employment still middling at the ~200K/mo level in the face of ongoing improvement in the claims data, we continue to largely fire on one cylinder.
We’ve profiled the positive, employment & wage inflationary dynamics percolating under the hood a number of times and with Job Openings (JOLTS) and Small Business Jobs-Hard-to-Fill making higher highs, extra-large corporations leading the employment charge, and short-term employed figures strong, the “less-slack-than-there-appears” argument will continue to bubble.
The prevailing trend in the above factors could have supported an accelerating employment thesis and pro-growth, consumption centric positioning for the better part of the last year+, however (note: Utes outperformed the SPX by 3X yesterday and are +15% YTD vs. -0.2% for the XLY).
Wage inflation is a lagging indicator and whether internal tightness and rising mobility (more renters, less houses underwater) can finally catalyze a transition to a 2-cylinder labor market driven by the demand side remains a waiting game.
And as we’ve remarked previously, patience probably remains the most prudent prescription:
The frustration and impatience on the pace of the recovery that pervades media reports and pundit commentary offers an interesting juxtaposition against the almost universal acknowledgement that balance sheet crises and the back end of long-term credit cycles invariably augur protracted periods of sub-trend growth.
Passivity doesn’t sell advertising and generally doesn’t drive AUM, but a little more patience and little less manic punditry is probably the right prescription
NSA: Non-seasonally adjusted initial claims, our preferred read on the underlying trend in the labor market, posted another solid print at -10.9% YoY. This takes the 4-wk rolling average to -10.2% YoY from -8.8% prior, and back near the best levels of year
SA: Headline claims improved -6K to +312K WoW with rolling claims (+312K) moving back to the best levels YTD and the best levels since august 2007
In isolation, the initial claims numbers again remain supportive a good NFP print this month.
Christian B. Drake