Most of the time, if a jobs report like the one that came out Friday morning were to be released, there would be only good things to say about it. Job creation remained robust, the unemployment rate fell to match a five-decade low, and wages rose steadily in September.
Yes, but: These are not normal times. We're at a moment in which small changes in the data could have an outsized effect on the Federal Reserve's policy fulcrum, and hence what the economy looks like in 2023 and beyond.
Why it matters: The remarkable resilience in the U.S. labor market is great for workers, but will make the Fed inclined to keep pushing interest rates higher, with all the problems that entails.
By the numbers: The U.S. labor market is exceptionally strong. The unemployment rate fell to 3.5% from 3.7%; the last time it was lower was May of 1969. Pretty much every American who wants a job right now can get one.
- The 263,000 jobs employers added are a deceleration from the 439,000 jobs added on average over the first eight months of the year, but still represent a very healthy pace of job creation — higher than the average rate of job creation in any year of the 2010s expansion.
- Similarly, average hourly earnings were up 0.3% in September. Over the last three months, wages have risen faster than prices, assuming the September Consumer Price Index announced next week comes in about as expected.
Between the lines: That's good news for workers. But in the halls of the nation's central bank, it will be interpreted as a sign that their campaign to tighten the screws of monetary policy — for all its effects in making global markets go haywire— is not constraining surging demand. That, in turn, fuels inflation.
- In particular, the drop in the jobless rate was paired with a contraction in the labor force: 57,000 fewer Americans were either working or looking for work.
- While that could well be a statistical blip, it cuts in the opposite direction of what the Fed would hope to see — namely, an expanding labor force.
The new numbers are consistent with the Fed raising interest rates by a supersized 0.75 percentage point in early November for the fourth straight meeting. Just this week, multiple Fed officials affirmed that recent turbulence in global markets is not shaking their resolve to keep up rate increases.
- "In our current economy, with a very strong labor market and inflation far above our goal, I believe a risk-management approach requires a strong focus on taming inflation," said governor Lisa Cook in a speech Thursday.
But, but, but: The longer the Fed stays on this course of very rapid rate hikes, the more likely it will overshoot and cause more U.S. and global economic pain than is necessary to bring inflation down.
The bottom line: Good news now raises the risk of things going awry next year.
