US: Job Market Still Too Hot for Fed’s Tastes — Wells Fargo

The dollar pared its weekly losses after the release of the US jobs report, which showed better-than-expected numbers. Wells Fargo analysts They point out that the increase in employment was fairly widespread across all industries, even in cyclically sensitive sectors such as construction and manufacturing. They argue that the labor market remains too hot for the Fed’s liking, and that much slower growth in employment and wages will be needed to bring inflation back to the central bank’s 2% target on a sustained basis.

Notable Statements:

“Non-farm payrolls again beat expectations, rising by 263,000 in November. Employment growth was fairly widespread across all Industries, even in cyclically sensitive sectors such as construction and manufacturing. Median hourly earnings growth was much stronger than anticipated, and the new supply of labor that could help add water to the fire did not come once again: the labor force participation rate fell by a tenth and is now below where it was at January.”

“Payroll growth of 263,000 is still too fast at this stage of the business cycle, and wage growth of ~5% is one and a half points above what would be consistent with the Fed’s inflation target. A shift down for a 50 basis point rate hike in December seems likely, but the Fed still has some way to go in its tightening cycle.”