Top Three Things to Watch this Week | Jobs, Inflation, and More

Nonfarm Payrolls Review | Is the Data Reliable?

"I don't know whether I make myself pain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn't get you anywhere." - Jesse Livermore During the Fed's last policy meeting, Fed Chair Powell stated that he didn't need to see a "super strong" September jobs report in order to give the committee greenlights on tapering. While Friday's jobs report was far from strong, pandemic-related hiring dynamics and hiccups in public sector employment drove a low number; ultimately, it leaves the Fed with accelerating wages, an economy with 11 million jobs to fill, and a downward trending unemployment rate.

  • +194k jobs added in September; unemployment rate declined to 4.8%

  • Employment in local government education down 310,000 -- we have pointed to the BLS's recognition of such dynamic on Aug. 29, 2021 "seasonal hiring distortions in education"

  • Labor participation declined from 61.7% to 61.6%

  • Average hourly earnings up 0.6% m/m (accelerating from +0.4%)

More highlights on Friday's NFP here:

Just 194k jobs added in September, even as Unemployment Rate tumbles, Wages rise - Zerohedge

We have talked about this idea in the past and want to reiterate it in this writing: it may not be whether the Fed will taper but more so the pace of tapering that is data dependent. After all, liquidity remains high and borrowing needs may not be as large as conventional wisdom might suggest (Debt Ceiling Section from Sep. 26, 2021).

Source: September job growth was worse than expected but better than it looked - Peterson Institute for International Economics

Twitter Thread by @jasonfurman

Despite a tight labor market, people who went to work did a lot of it; leading to hours-adjusted basis private jobs that were up 1,036,000 (vs. 317,000 not adjusted @jasonfurman).

Source: September job growth was worse than expected but better than it looked - Peterson Institute for International Economics

"Delta wave had a pretty clear impact on the labor market this month. The share of folks who had a job, but absent from work due to illness was at 1.0% - the highest since January, & well above the typical rate of 0.6%." - @EconBerger

Considering the pace of the current recovery, the extent to which international movement is still restricted, and the fact that short-term fluctuations in employment data are inevitable - amidst hot-running inflation, - there is no reason why the Fed won't announce its taper program in November (long-dated treasuries are certainly reacting already.)

Source: OpenTable

In spite of tough hiring conditions for small and medium businesses, fiscal uncertainty and inflation becoming conventional wisdom, people's appetite to go out is at 2019 levels.

There isn't a day going by without hearing about strikes, labor shortages and supply chain constraints leading to reduced capacity across services. Yet, TSA checkpoint numbers continue to trend up and have done so devoid of global passengers moving through and around the U.S. .

Southwest Airlines cancel 1,800 flights, blaming weather and staffing - CNBC

"Show me the incentives and I will show you the outcome." - Charlie Munger

While we stay vigilant about macro-level data points, the 30,000 feet view remains just as important.

We face an aging population globally, businesses that are struggling to hire enough workers, and a geopolitical landscape that's increasingly taking place across domains (including kinetic jawboning.)

In addition to unfriendly demographics, the world is facing an energy reshuffling where public and private industries are reorganizing themselves around the idea of net-zero -- last week's "Natural Gas, Coal and Global Energy" section covers more.

As the world's major growth driver over the last few decades, China is at the pinnacle of how markets will price future consumption of goods & services.

The country has become ever more inwardly orientated as the Belt & Road Initiative is driving the future vision of the mainland. Covid has been a wake-up moment for the Western hemisphere and uncovered the vast dependencies that are ingrained in supply chains.

Global coordination becomes very hard when ideologies prevail over ideas and strategic alliances get formed around the world's most relevant security interests.

Source: China's Massive Belt and Road Initiative - Council on Foreign Relations

"He is preparing the economy for a new phase of slower growth where the party asserts greater and great control over the economy. It's all about politics before growth." - Washington Is Getting China Wrong, The Atlantic

Macro markets are no more than a capital flow chart influenced by giant and more nuanced variables of the "macro equation". During times where central banks decide to stay behind the curve, this equation serves as a forcing function for monetary policy.

  • Citi Global Economic Surprise Index (white line)

  • Citi Global Inflation Surprise Index (blue line)

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CPI Preview | How About Inflation?

At 7:30 am CT on Wednesday, eyes will turn to inflation. A booming housing market, rising energy prices, and supply chain shortages are nothing but spurring inflation spiral fears among the population and central bankers.

Source: House Price Index (HPI) Monthly Report - FHFA

Please refer to our write-up from Aug. 22, 2021 for more details on how housing prices translate into consumer inflation data:

Top Three Things to Watch this Week | Housing, Treasury Issuance, Jackson Hole

Source: Apartment List

Source: Apartment List

Energy Prices and the transition to a hydrocarbon-free economy and implications thereof.

Source: Global price of Energy Index - FRED