Labor Market “Slack” Returns to Pre-Pandemic Levels, Fed Definitely on “Hold” (Next Week), Bond Market Rally Continues

Over the past year, the Fed has been highly focused on labor market dynamics as they look to (hopefully) ending the hiking cycle.  This week’s data continued the cooling labor market narrative: factory orders down more than expected (Monday), lower than expected job openings (Tuesday), ADP report showing lower than expected private sector jobs added (Wednesday), and Initial jobless claims increased slightly (today).  The 10-year T is now at 4.11%.  Also, note that September and October payroll numbers were revised downward – continuing a stream of several downward revisions in employment statistics.   The Fed is hyper-concerned with wage inflation and labor market tightness coming out of the massive Covid fiscal stimulus.  When job openings per unemployed worker approached 2 to 1 (see chart), any chance of price increases moderating was slim to none.  The Fed is expected to keep rates steady at next week’s meeting with all of the action in the commentary, Powell’s presser and a new “dot plot” of predicted economic conditions for 2024. Stay tuned…

By David R. Pascale, Jr., Senior Vice President at George Smith Partners.