Blowout Jobs Plunge Final Dagger into the Powell Pivot

A scorching-hot jobs report finally woke up a few bond vigilantes today to recognize they have priced bonds on the wrong side of history. With so many jobs supposedly added to the economy, the odds of a Fed pivot on interest rates in March got skewered. With no visible signs of any slack appearing in the labor market and Powell claiming the economy is strong and resilient, what possible reason could he have to lower rates when inflation is still up?

In fact, this jobs report was so screamingly strong it also shrieked of higher inflation to come. One of its strongest components was wage gains. This was a “whopper” of a jobs report said CNBC’s Rick Santelli, with a “huge jump” in pay:

We have to go on the Wayback Machine! That is the biggest nonfarm payrolls gains since January of 23, when it was 472,000.

And if we look at the unemployment rate, it is 3.7. It’s remained at 3.7. And just for history’s sake, the 3.4 low that we had was the lowest since 1953. That was in April of last year.

If we look at the average hourly earnings, a HUGE jump, up 6/10 of a percent…. It equals March of ’22. To find a higher number, you have to go to January of ’22.

And also for some context there, the amount of year over year is also popping 4.5%. We are expecting 4.1 the year over year.

So, there you have it: a blowout report that solidifies Powell into high for longer than most of the market has been believing and possibly back to higher. Unemployment remains calcified at a very low 3.7%, and wages are likely jolting inflation higher.

Even Zero Hedge is carrying an article that says,

"The Fed Has To Pay Attention" To This 'Simply Stunning' Payrolls Report

Simply a stunning number of jobs created….

Hourly earnings are great if you get earnings! 0.6% on the month, which is the highest since March 2022! If you are worried about inflation, and I am, that is a mildly disturbing statistic.  Last month’s annual number was revised up to 4.3% and this month’s annual number topped that at 4.5%! That takes us back to September levels and unwinds a trend of declines. The Fed has to pay attention to this!

If you believe the numbers, and I’m sure I’m not the only person skeptical about the numbers, not only is March completely off the table, the “pivot” talk may have to be walked back.

Yeah, walked a long way back, including Zero Hedge’s ceaseless pivot promotions.

If you believe the numbers, price in few cuts, start later, and push longer term yields much higher.

Except that I don’t ever believe the numbers from Biden’s Bureau of Lying Statistics. Neither does Zero Hedge. While the numbers, as another article below from Zero Hedge lays out in great detail are government-sharpened to a sharper edge than we’ve likely ever seen for some wicked presidential campaign empowerment, that won’t matter to the Fed who always accepts the government numbers at face value. It won’t matter to the public who takes the numbers at face value.

Says the writer of the article just quoted,

the numbers are so stunning they are almost unbelievable!

Totally unbelievable. Somehow January, when companies are laying off all their holiday season employees is always the biggest blowout month for new jobs according to the BLS, but the numbers don’t square with other realities in labor at all, and ZH does a good job (because it needs to preserve its pivot promos perhaps) in taking the shine off and getting down to some raw truth about the numbers. (Since they lay it out so well, I won’t repeat it here.)

The real truth isn’t going to help ZH’s pivot promotion find new life, however, because, as the ZH articles and CNBC articles proclaim, “The Fed HAS to pay attention to this.” If the Fed were to loosen rates in March after a blowout jobs and wage reports here, they’d face a lot of questioning as to how that is a “data-dependent” move, and they’d face intense criticism if inflation started going back up more visibly.

As Wolf Richter writes,

The employment data today poured some cold water on the raging Rate-Cut Mania: The 10-year yield spiked by 17 basis points within a couple of hours (but surely, they’re going to try to brush the employment data off too, like they’re trying to brush off the FOMC’s push-back statement and Powell’s post-meeting press conference)….

To be able to hire and retain these workers, employers have re-accelerated their wage increases. We’ve been talking about this for a few months, and it just keeps powering higher, which is great for workers (but not so great for companies, whose costs are rising), and it’s great for consumer spending – these wage increases will power consumer spending nicely, which is great for GDP and overall economic growth. But it’s also one of the potential fuels for consumer price inflation.

That is why the Fed HAS to pay attention to this report (since it never acknowledges the kinds of flaws in the report that ZH points out). They will see that wage number in bright red. As you can see, it’s quite a reversal:

The Fed is not going to like that!

And the employees who benefited the most, according to the “unbelievable” report, were average working stiffs.

Now, of course, if the whole US economy blows apart because Powell tightens too long and too hard, then Powell will reverse policy. As I’ve always said, tightening too hard until something big breaks will be the way this ends because the labor market, as a gauge, is broken and is NOT going to give Powell the room he needs to start turning policy around.

Reality bites

Oddly, we also read today that job seekers do not feel the labor market is booming right along at all; but isn’t that exactly what we would expect when the gauges are broken—that the experience of reality is much different than what the gauges indicate?

The job market looks solid on paper….

“The labor market has been fairly strong and surprisingly resilient,” said Daniel Zhao, lead economist at Glassdoor….

But active job seekers say the labor market feels more difficult than ever….

A 2023 survey from staffing agency Insight Global found that recently unemployed full-time workers had applied to an average of 30 jobs, only to receive an average of four callbacks or responses.

“Between the news, the radio, and politicians just talking about how the economy is so great because unemployment is low and just hearing all that, I just want to scream from the rooftops: Then how come no one can find a job?” said Jenna Jackson, a 28-year-old former management consultant from Ardmore, Pennsylvania. She has been actively looking for a job since her layoff four months ago.

More than half, 55%, of unemployed adults are burned out from searching for a new job, Insight Global found. Younger generations were affected the most, with 66% complaining of burnout stemming from job search.

That is a massive turnaround from what people reported experiencing several months ago, but the labor gauges are showing only the still-glowing news of better times for workers. They’re showing two months of wage gains and a huge rise in new jobs. Sounds like real experiencing is showing the gauges are, indeed, stuck or defective. So, the Fed will keep tightening longer and harder until things break badly and the breakage finally plunges us deep into recession, which is the exact order of events I’ve described for, at least, two years now as to how this all breaks up. We’re right on a predictable course.