January Non-Farm Payrolls (NFP) jobs expectations were for +150,000 new jobs and an unemployment rate of 3.9% (here). Reported new jobs tripled expectations coming in at +467,000 (here). The unemployment rate ticked a bit higher to 4.0% as more workers came back into the labor market.
On its surface the NFP report looks great; however, two details cloud the otherwise positive results. First, lower income service jobs in Leisure and Hospitality led the January gains with 151,000 new jobs. Notably, even after January’s growth, the sector is still down 1.8 million jobs from pre-pandemic levels in February 2020.
Second, all non-farm payroll data was revised to benchmark against the March 2021 quarterly census on employment and wages. Per the BLS “In accordance with usual practice, the seasonal adjustment models are updated as part of the annual benchmark process. As a result of the updates, there were some large revisions to seasonally adjusted data that mostly offset each other”. This, coupled with the immediately preceding ADP payroll report showing a -301,000 job loss, compels at least some caution on reading too much into the NFP report.
Regarding wages in the BLS report, over the past 12 months, average hourly wages grew +5.7%. The average workweek fell 0.2 hours. Looking at wages versus inflation, real disposable personal income (DPI after inflation) in January fell -0.2%.
The good: excluding government transfer payments DPI is up +3.0% over the past twelve months. The bad: looking at the trend, real DPI has declined five consecutive months. In other words, over the past five months workers have been losing income (buying power) to inflation.
Inflation figures through the most recent reporting period ended November 2021, saw the Consumer Price Index (CPI) for All-Items rise 6.8% over the past twelve months. According to the BLS, this is the largest 12-month increase since 1982. Inflation readings for Energy rose 33.1% and Food rose 6.1%. Both are the largest 12-month increases in at least 12 years.
Speaking of energy prices, West Texas Intermediate (WTI) crude oil recently traded at $92.31 per barrel, up from $37.14 November 1, 2020. Oil continues to trend higher as do items like, cattle, coffee, and cotton.
Not every commodity is trending higher though. Since last summer, we have started to see some notable price declines. Futures contracts on several raw materials appear to have already peaked for this cycle. For instance (listed alphabetically) copper, corn, hogs, lumber, palladium platinum, soybeans, sugar, and wheat are all priced lower today than in 2021. The biggest futures contract declines are in lumber (-25% from May 2021), palladium (-23% from May), platinum (-19% from March), hogs (-14% from June) and corn (-10% since May).
Regardless, in reaction to decades high CPI numbers, the Fed is winding down its quantitative easing program (QE), planning to start a quantitative tightening program (QT) and moving closer to its first Fed Funds rate increase since 2015. No doubt this will have a dampening impact on economic activity and prices going forward. How much dampening or how severe the economic slowdown will be is something to watch for very closely.
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