September 2023 Jobs Report

The jobs report came out. The S&P 500 didn’t do much initially but later rose near 1%; the yield curve generally steepened and 5-year TIPS breakeven inflation expectations rose a little bit, and are now over 2.1%.

Markets said the Fed would be incrementally more tolerant of inflation because hiring was a bit stronger than expected. Jobs are a real indicator, so the strong report says the economy is able to map nominal spending into real output (as opposed to inflation) better than expected, it’s a modest positive signal for the supply side. It means the Fed can get more employment and real output for a given amount of inflation, so the optimal inflation rate is just slightly higher than before knowledge of the report came out.

Private sector job gains were strong too. Usually you see payroll employment updates expressed in thousands of jobs, but there’s no reason not to report it in monthly percentage change, so I’ve done that below. The chart shows us September had the strongest monthly job growth (seasonally adjusted) since March.

You may have seen this Zerohedge post dismissing the jobs report as government-driven. I read through it quickly and did this anyway. However, re-reading it, I see it was Household survey data, which is less relaible than the establishment survey data I have plotted above.

Overall the market response to the report seems pretty reasonable. Highering is stronger than previously understood, in a context of lessening inflation: risk on.

I still see the Fed committed to a boa constrictor strategy of tighten-relax/tighten-relax, as they bring nominal spending growth and inflation lower.