November’s employment report is released at 8:30. Non-farm and private sector payrolls are expected to rise by 218k and 203k, respectively. A 4.1% unemployment rate and a 0.3% increase in average hourly earnings are forecasted. The labor participation rate (LPR) is believed to have increased to 62.7% from 62.6%.
Any increase in wages may be scrutinized as wage (cost push) inflation is perhaps now embedded in the economy. Historically the only way to overcome this type of inflation, inflation that has not shown its ugly head since the late 1970s, is via a debilitating recession or an increase in available workers.
Commenting on available workers, the LPR is not at its pre-pandemic levels of around 64.4%. Volumes have been written as to why, however, for these remarks it will only be stated that if the LPR returned to pre COVID levels, the unemployment rate would be closer to 6%.
Wages are the largest cost of production. Considerable attention has been focused on the double-digit wage gains won by various unions. It is now spreading to the smallest firms.
According to Bloomberg, wage growth is now accelerating by the greatest degree in over two years at the smallest firms. Paychecks at firms that employ fewer than 20 people grew at a 4.2% annual rate in the month, climbing from 3.9% in October, the biggest jump since early 2022.
The Federal Reserve states that this cohort of tiny firms employs more than 25% of the workforce. Among slightly larger firms that employ between 20 and 49 people wage growth accelerated by 4.8%.
The two smallest categories account for more than 40% of the labor force.
This acceleration of wages is of major concern and importance to Fed policymakers.
Accelerating wages is a two-edged sword. It is inflationary, impacts margins but is necessary to ensure a compliant society. It is widely accepted that inflation was a major reason for the outcome of the 2024 election.
Prices are up over 25% since early 2020 but real wages are down about 9%. Writing it differently, government data suggests that wages would have had to increase around $8,400 to stay even with the inflation since early 2020.
Market perceptions could potentially change if the data is significantly different than forecasts.
Perhaps the significance of the last four years is the unexpected is consistently occurring. Will today’s report be a continuation of the recent trend?
Commenting on yesterday’s market action, all markets were quiet ahead of the jobs data.
Last night the foreign markets were up. London was down 0.12%, Paris up 1.46% and Frankfurt up 0.23%. China was up 1.05%, Japan down 0.77% and Hang Seng up 1.56%. Futures are flat but this could change significantly if the 8:30 data differs sharply from the consensus view. The 10-year is up 1/32 to yield 4.18%.
