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Friday, June 3, 2022
Today’s newsletter is from Myles Abroad, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.
The May jobs report will drop in a few hours — or will have dropped a few hours ago, depending on when you check your inbox — and investors will be watching closely.
But this report is also likely to usher in an updated version of some of the more convoluted market analysis that investors accept as normal – is “good news, bad news” “bad news, good news” or “good news, good news”?
And while that framework seems, in many ways, halfway too smart, asking whether “good news is bad news” is just another way to answer the question posed to investors by all the reports on the market. jobs: what does this data mean for the Fed?
The “good news” in the case of the May jobs report would be another month of job gains up more than economists expected, wage growth remaining robust and the unemployment rate falling further.
Data from Bloomberg shows that economists expect 323,000 jobs to have been added last month, with the jobless rate expected to fall to 3.5%.
So there’s your bogey on a gear that counts as “good” or not.
But why would a “good” report be “bad news” for the market? Because another strong jobs report would likely keep the Fed’s future plans intact. And what’s more, a more than just good report could prompt the Fed to be even more aggressive in the coming months.
All of this means the stage is set for a full summer of conversation about which economic data is good or bad news for investors.
The simplest way to describe the Fed’s policy stance right now is “tightening” – the central bank raising the cost of borrowing money in an effort to slow inflation. For financial assets like stocks and bonds, these tightening cycles are difficult. Just look at the stock market so far this year.
To tighten policy, the Federal Reserve is raising interest rates and embarking on so-called “quantitative tightening,” which will see the Fed’s balance sheet shrink over time as certain holdings mature.
And while inflation has many causes, part of what drives prices up is a stronger labor market. By tightening financial conditions, Fed officials hope, in part, to slow the labor market.
In recent months, strong business demand for labor has resulted in more workers earning higher wages, and higher wages mean more purchasing power for consumers. And more purchasing power has, in turn, meant upward pressure on prices, prompting the Fed to embark on aggressive moves to raise interest rates. Good news that turns into bad.
Asked at a press conference last month whether the Fed thought it could slow hiring without tipping the economy into recession, Fed Chairman Jay Powell said: “There is a way .”
Powell added, among other things, that one measure he would like to see moderated is the number of open jobs per unemployed person; data released earlier this week showed a decline in the number of open jobs at the end of April.
This need to slow the labor market was also echoed by President Joe Biden earlier this week. In an op-ed in the Wall Street Journal on Tuesday, Biden wrote that if hiring slows to 150,000 jobs per month from the current pace of 500,000 new jobs each month, “it will be a sign that we are successfully moving to the next phase of recovery – because this kind of job growth is compatible with low unemployment and a healthy economy.
Or, put another way, a return to an economy where good news for workers can be good news for investors.
What to watch today
8:30 a.m. ET: Change in non-farm payrollMay (323,000 expected, 428,000 in previous month)
8:30 a.m. ET: Modification of the private payrollMay (302,000 expected, 406,000 in previous month)
8:30 a.m. ET: Change in manufacturing payrollMay (39,000 expected, 55,000 in previous month)
8:30 a.m. ET: Unemployment rateMay (3.5% expected, 3.6% in previous month)
8:30 a.m. ET: Average hourly earningsmonth-over-month, May (0.4% expected, 0.3% in prior month)
8:30 a.m. ET: Average hourly earningsyear-on-year, May (5.2% expected, 5.5% prior month)
8:30 a.m. ET: Average weekly hours All employeesMay (34.6 expected, 34.6 in previous month)
8:30 a.m. ET: Labor force participation rateMay (62.3% expected, 62.2% in previous month)
8:30 a.m. ET: Underemployment rateMay (7.0% previous month)
9:45 a.m. ET: S&P Global Manufacturing PMIMay final (53.5 expected, 53.5 in previous month)
9:45 a.m. ET: S&P Global US Composite PMIMay final (53.8 expected, 53.8 in previous month)
10:00 a.m. ET: ISM services indexMay (56.5 expected, 57.1 in previous month)
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