Anticipating U.S. Jobs Figures and Realizing the Fed’s Gonna Do What the Fed’s Gotta Do
October 7, 2022
The U.S. monthly employment report due shortly will be a key decider of how much the fed funds rate gets hiked at the next FOMC meeting.
In anticipation, the dollar dipped very modestly overnight, and U.S. and European share prices have barely moved. Ten-year sovereign debt yields, in contrast, have climbed 10 basis points in Italy, 7 bps in France, Germany, and Spain, 4 bps in the U.K. and just two basis points in U.S. Treasuries. WTI oil jumped 1.2% in continuing reaction to the large planned and coordinated oil production cutback agreed by Russia, Saudi Arabia, and the rest of OPEC. Gold eased 0.3%, and Bitcoin firmed 0.2% to straddle the $20,000 level.
Fed policy is going to be dictated by the U.S. inflation outlook. The resulting dollar strength threatens the economies of many other countries, some of whose central banks are using intervention to support their own currencies. It’s been revealed that Japanese intervention last month nearly totaled $20 billion. In the two months between July and September, Japanese and Chinese currency reserves fell by $85 billion and $75 billion. Those drops were likely associated with considerable selling of U.S. treasuries held by those countries.
Among price data reported today,
- German import prices leaped 4.3% in August and by 32.7% on year, most in 581 months. Prices for natural gas were were 306.3% higher than in August 2021.
- Mexican CPI inflation held steady at 8.7% last month, and the 0.6% rise of consumer prices from the prior month was the smallest monthly gain in four months.
- Chilean CPI inflation, which touched a 362-month high in August of 14.1%, retreated to a 2-month low of 13.7% last month.
- Likewise, Estonian CPI inflation slid from a record 24.8% in August to a 2-month low of 23.7% in September, which was still almost four times greater than the 6.6% pace in September 2021.
Japanese real household spending fell 1.7% on month in August but recorded the largest 12-month rate of increase (5.1%) in seven months. Japanese average cash earnings on-year 1.7% rise in August was the smallest since 1.0% in May. Japan’s index of leading economic indicators rose 2% in August to a 4-month high, and the index of coincident economic indicators advanced to a 39-month high, earning the trend designation of “improving” for a sixth straight month. In spite of such encouraging economic news, the yen got as weak overnight as 145.1 versus last month’s 24-year low of 145.9 per dollar.
U.K. labor productivity growth in 2Q 2022 has been revised from zero percent to a rise 0.3%, still not enough to reverse the first quarter’s decline of 0.6%. Britain’s Halifax house price index in September recorded the smallest on-year increase (9.9%) since January, having peaked at 12.5% in June.
German industrial production fell in August by a greater-than-forecast 0.8%. Output had been unchanged in July, but the 12-month rate of changed turned positive for the first time in over four months. German retail sales also contracted on month in August, dropping 1.3% from July as well as 4.3% from a year earlier.
Industrial production in other economies during August rose on month by 3.1% in Norway, 2.6% in Denmark, 16.5% in Ireland (after a 26.6% plunge in July there), and 0.8% in the Czech Republic.
France’s current account remained in deficit for a seventh straight time during August. At EUR 5.1 billion, the deficit’s size was almost as great as July’s 25-month high deficit of EUR 5.33 billion.
Spanish consumer confidence in September edged marginally higher to a reading of 55.7, well below the September 2021 reading of 98.3.
Italian retail sales fell 0.4% on month in August. The 4.3% 12-month rate of increase was a tad more than in July but well down from 8.3% in April.
U.S. labor market statistics revealed continuing tight conditions. These September data are the last ones to be released before the next planned FOMC meeting on November 1-2. Other factors between now and then being the same, today’s result would be more consistent with another 75-basis point interest rate hike than a smaller 50-bp move. Non-farm payroll jobs rose a bit more than expected (263k) last month and by 372k per month in the third quarter. Unemployment fell 0.2 percentage points to match July’s 29-year high. Labor force participation failed to rise as officials hope such will but instead edged down to 62.3%. Hours worked remained at 34.5 per week, and average hourly wages rose 0.3% on month and 5.0% on year.
Canadian labor market statistics were also strong during September. A 5.2% on-year rise in average hourly wages was marginally faster than the U.S. pace, and jobs growth of 21.1k is a akin to a 165k advance in the larger U.S. labor market. The jobless rate had risen half a percentage point to 5.4% in August from July’s record low of 4.9% but reversed almost half that move and printed at 5.2% last month.
The policy interest rate at the Central Reserve Bank of Peru was increased late yesterday by 25 basis points to 7.0%. Rate tightening in Peru began back in August 2021 from a pandemic base of 0.25% reached after back-to-back reductions of a full percentage point in March and April of 2020. There had been a dozen consecutive 50-basis point hikes until officials throttled back the incremental size to 25 basis points at the September meeting. But at 7.0%, officials are still running with a negative real interest rate, since CPI inflation has accelerated from 5.2% in September 2021 to 8.5% in September 2022. They are counting on fading external shocks that have elevated food and energy price pressures to to a lot of the work of reducing overall inflation to their target band of 1.5% – 3.5%.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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