Market Week: November 7, 2022

The week in review

JOLTS increased to 10,717K
FOMC increased federal funds rate by 75 bps
U.S. composite PMI: 48.2

The week ahead

CPI Inflation Report

Thought of the week
The October Jobs report saw a stronger-than-expected gain of 261,000 non-farm payroll jobs. However, with the unemployment rate edging up to 3.7%, the stubbornly tight labor market may be gradually softening. This notion was further supported by the wage data; although average hourly earnings increased 0.4% m/m, this cut the y/y increase to 4.7% in October from 5.0% in September. This surprising relationship between labor demand and wages sends a key message to the Fed: the labor market’s persistent tightness is not necessarily causing an acceleration in inflation, yet merely slowing the highly anticipated deceleration. While wage growth has remained steady on a month-overmonth basis, there has been significant dispersion at the industry level. While there are signs of a slowdown in the goods-producing sectors, particularly the mining and logging industries, construction wages remain robust. Additionally, the report pointed toward continued strength within services-oriented sectors, further highlighting that the economy is still running hot in certain areas. In particular, transportation and warehousing saw a 0.7% m/m increase in wages; this is primarily due to a chronic lack of workers for these roles, higher transport volumes and continued supply chain constraints, which have been further complicated by the low water conditions in the Mississippi River. Beyond transportation, wage growth in information and financial activities has kept pace as well. Despite some cooling in the employment report’s headline wage numbers, continued momentum in the labor market, along with a robust CPI report expected next week, should keep pressure on the Fed to maintain an aggressive stance in its effort to combat inflation. Chairman Powell’s hawkish rhetoric at last week’s meeting signaled that any sort of pausing seems premature, and that the runway for rate hikes may extend further into 2023 than many expect.

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