Today’s #JobsReport was a clear indication that #LaborMarket dynamics are softening. For example, the 3-mo. moving average of nonfarm #payroll growth sits at 247k jobs, after a higher-than-expected print of 223k jobs for Dec, in contrast to 2022’s average mo. #job gain of 375k.
We have witnessed a marked deterioration in temporary help services in recent months, and a slowing in #wage growth in December, which both highlight the relative slowdown in the labor #market overall, even as the #services sector remains quite buoyant.
Yet, while the softening trend is clear, and the momentum of #hiring is slowing in a significant way, it is equally clear that we are far from what could be described as a demand-reducing weakening of #labor and #wage conditions.
In fact, continued hiring in the still solid service sector is evidenced by #payroll gains of 74,000 jobs in health care and social assistance and 67,000 jobs in #leisure and hospitality.
In our view, this is illustrative of an #economy displaying still tight labor market conditions and one that is not yet fully recovered from the Covid-driven reductions in #workforce in parts of the service sector and the continued demand for people in labor intensive industries.
Indeed, if we look at the gap-to-trend levels of #employment in two physically demanding industries, nursing/residential care and accommodations, we’re still missing more than 800k workers from expected levels, a disjuncture that should support lower #wage labor in these areas. 
We believe that the moderation in #employment conditions will continue, as parts of today’s report show, but we think there is still a stickiness to the labor #demand in services, which will persist for a while.
Ultimately, this makes the @federalreserve’s job of slowing demand for employment and reducing high wages, and thus stubbornly high levels of #inflation, harder from here.
We think durably lower levels of #inflation would have to coincide with slower demand for employment (and consequently #wages), before the #FOMC would be ready to relent on tightening policy.
It is interesting to look at the word count of the Minutes to see how #employment has become a growing focus for the #Fed (recently higher than it was for much of the early part of last year), even as #inflation has begun to moderate.
Consequently, we think the #Fed is not ready to pause yet, and that we need some further downside momentum in #employment for the Fed to feel like it is reaching a balance.
We worry that this means that the central bank could #overtighten and create major pressure on the interest sensitive segments of the #economy from here. We clearly are seeing that play out in parts of the #RealEstate market today and increasingly in the automobile sector.
In fact, the automobile portion of the $SPX index was down 34% over the fourth quarter of 2022, while the $SPX itself gained 7% on the quarter: The #interest sensitive parts of the economy are clearly adjusting, in some ways in a very harsh manner.
Overall, though, the less #interest-rate sensitive #service sectors are generally doing quite nicely, as we have described in prior commentaries.
So, creating balance and not #overtightening, reducing #inflation with blunt tools, which only impact parts of today’s modern #economy is in itself a balancing act that even the most decorated Olympian would envy.
Policymakers ability to stick this landing for the economy and #markets is still very much up in the air.
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