US Labor Market
This morning’s jobs report serves to underscore that the labor market is not a source of inflationary pressure and therefore of second-order importance when it comes to the Fed’s near-term decision making.
An acute shortage of AI hardware will support tech stocks into year-end. However, AI companies may need to ultimately generate $10 trillion per year in revenue to justify their capex. Barring a massive increase in productivity growth, this will be very difficult to achieve. Despite today’s Treasury announcement of upsized buyback operations, bond yields are likely to remain elevated over the coming months. Rising crack spreads have reduced the demand for crude, which is not encouraging for global growth. On the FX front, recent intervention to support the yen will probably be insufficient, but there is significant long-term upside for the currency.
In Section I, Doug revisits the situation in the Strait of Hormuz and its implications for growth in Europe and the US. In Section II, Jonathan explores whether Kevin Warsh's appointment as Fed Chair signals a return to Greenspan-era, rules-based monetary policy.
Improving job growth keeps Fed rate cuts off the table, but evidence of labor market tightening will be required before rate hikes become part of the discussion.
US employment data show some tentative signs of job growth acceleration and stable utilization. We see breakeven monthly job growth as closer to +30k per month than zero.
Job creation remains stalled, but consumers are carrying on and S&P 500 earnings have been growing by double digits. Although the repercussions from the war in the Middle East are not yet clear, the US economy was doing just fine before it began.