
Monetary Policy & Inflation | US
Monetary Policy & Inflation | US
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.
September NFPs at 263,000, were higher than the 255,000 expected. In terms of YoY growth (a better indicator of trend than monthly NFP changes), employment growth continued to slow, ever so gradually, 3.9% against 4% in August (Chart 1).
Labour supply growth, however, did not increase: it was up 2% YoY, the same as in August. This reflected a decline in participation: average September participation fell by 10bp to 62.3%, against 62.4% expected. In turn, this reflected a 60bp decline in women’s prime age participation while men’s increased by 20bp. Average participation remains below its March 2022 peak.
With faster growth in labour demand than supply, unemployment fell by 20bp to 3.5%, against 3.7% expected, the lowest since 1965. Hours worked were unchanged and remain above pre-pandemic levels, another sign of a labour market experiencing strong resource pressures (Chart 2).
Hourly wages growth remained 0.3% MoM in line with consensus and below my expectations. In part this reflected compositional effects. The share of low paid employment – mainly retail, leisure and hospitality services – continued to increase, which dragged down the average. And nominal wages increased by more than headline CPI’s 0.1% (September PCE will be released on 28 October).
At 5% YoY, wage growth remains well above the level consistent with 2% inflation. Since I expect goods price inflation to remain positive, and services price inflation is tightly correlated with wages growth, a return of inflation to target could require nominal wage growth below 2%.
Still, real wage growth remains well below productivity, which is a puzzle give how tight the labour market is (Chart 3).
Overall, the September NFPs continued to paint the picture of an overstretched labour market. Despite relatively tame wage growth, this supports a 75bp hike at the 2 November FOMC meeting. Longer term, it also suggests a Fed pivot is unlikely anytime soon.
Spring sale - Prime Membership only £3 for 3 months! Get trade ideas and macro insights now
Your subscription has been successfully canceled.
Discount Applied - Your subscription has now updated with Coupon and from next payment Discount will be applied.