Pro Perspectives 3/6/24






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March 06, 2024

We heard from Jerome Powell today, at his semiannual Congressional testimony.  His prepared statement, which he’ll repeat in a visit with the Senate tomorrow, was short and uneventful.  

So was the Q&A.  For those looking for clues on some sort of incremental change, there were no clues.  In the prepared remarks, he said “our restrictive stance of monetary policy is putting downward pressure on economic activity.”  But he repeated the recent mantra of needing “more confidence” to make a move on rates (i.e. more data to assure the low level and falling inflation trajectory is sustained).

He did acknowledge increases in insurance prices as “adding meaningfully to inflation.”  And as we’ve discussed in my daily notes, the good news is, this (rising insurance premiums) is a lagging feature (likely a late stage feature) of a hot inflationary period.

Now, we talked yesterday about the recent Fed commentary on risks to employment, if the Fed were to stay too restrictive, for too long.  

On that note, we get the February jobs report on Friday.

This will be a big one.  It was the January jobs report (which came in on February 2nd) that reset the market outlook on interest rates

As you can see in the chart of the 10-year yield, a hotter jobs number sent the 10-year yield from 3.87% to as high as 4.35% by the end of last month. 

And the interest rate market swung from fully pricing in 50 basis points of rate cuts by June, to now pricing in a bit better than a coin flips chance for just a 25 basis point cut by June.

So, what was that hot payroll number?  It was 353,000 new jobs added.  Expectations were for 185k.  Moreover (maybe more importantly), there was a big upward revision to the December jobs number.  It was revised up from 216k to 333k

Now, this is especially interesting, as we head into Friday’s numbers, because the Bureau of Labor Statistics has a history of making large revisions in the jobs data, under the current administration.  

Remember, we talked about this back in January (here).  As you can see in the table below, the BLS revised UP eleven of the twelve months of nonpayroll numbers in 2021.  And it was significant.  For the full year, the initial monthly reports UNDER reported job creation by 1.9 million jobs

So, the job market was much stronger than was initially reported in 2021.  And the view of a relatively modest job market recovery was used to justify the Fed’s claim that inflation was “transitory.”  And the Fed’s claim that inflation was “transitory” was used to rationalize Congress’s pursuit of even more fiscal stimulus (which was more fuel on the inflation fire). 

You could argue the opposite has happened in 2023 …

With a December revision remaining, the BLS has OVER reported job creation by over 300k jobs.  They’ve revised DOWN ten of the twelve months.   

So, 2023 looks like the opposite of 2021.  And the Fed has the opposite policy stance of 2021 — now highly restrictive, with job growth that is weaker than was initially reported.

With the above in mind, we may see some meaningful revisions to the December and January data, within Friday’s job report.