America’s jobs report is not as strong as it seems | Hacker News Reader

America’s jobs report is not as strong as it seems

economist.com

29 pointsmfiguiere52 comments

I don't get why the stock market rallied on a strong jobs report.

Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more unemployment and to bring wages down)

In order to achieve their mission, they'll keep hiking rates or hold them higher for longer.

How is that good news for the stock market?

There's easily been at least a few job reports in the past 6-12 months where, if it was positive, because of the Federal Reserve implications, the market falls.

"Good news is bad news" and vice versa

>Strong jobs report = the Federal reserve hasn't achieved what they wanted yet (slightly more unemployment and to bring wages down)

Good news is now good news though, as despite what your are saying (which has been true) the Fed has made it extremely clear they are pausing and will not raise rates again this cycle

Is that believable?

That’s a personal question

good point!

You are talking about the foxes that killed all the hens when Powell printed his 15 trillion dollar bubble in April 2020 and exactly that fox is now guarding the inflation hen house. Of course he's going to say "one and done" every time he raises rates because he's a fool and doesn't want to draw more attention to his big life mistake!

He wasn’t the only one pouring endless trillions into the economy. Congress, under both parties, lit an unprecedented amount of money on fire.

Markets can stay irrational for a very long time, sometimes multiple years. Only long term trends are really meaningful.

Have markets ever been rational? They’re typically consistent, and you can make money arbitraging on inconsistencies, but rationality in markets is an economists delusion.

If they are rational then I think the corelary is that they hate us. So I prefer to assume that they're irrational.

No, they haven't. That said, economists have lots of delusions about markets (and i point them out), but to be fair, their rationality claim is usually about efficiency, rather than some form of more general rationality.

IE rationality is things like "excess pricing opportunities are rare and go away quickly"

rather than

rationality is "people do generally sane things"

Yes, that’s what I mean by consistency. Put call parity will generally exist because it’s consistent with expected behavior, otherwise market participants will capture the inefficient pricing and bring it back to consistency. Here I mean the market has some structure and relationships between instruments and in so far as prices are consistent with the structure of the market and it’s instruments they’re “efficient,” or perhaps rational. But I think when people say “is the current marker rational or is it exuberant?” they don’t mean consistent / efficient, they mean “aligned with fundamentals in a way that makes rational sense to an economist.”

As Buffet said, in the short term the market is a voting machine, in the long run a weighing machine.

> I don't get why the stock market rallied on a strong jobs report.

The stock market is entirely divorced from the economy. All that matters is investor sentiment, which, in some cases, might correlate with the economy, but for the most part it's somewhere between a horoscope and a casino. Don't assume rationality from the stock market.

And don't overweight news headlines with the stock market, the people who are writing them are frequently paid by the click.

That doesn't sufficiently explain what's going on though. Sure, at this point its best to not think of stock performance as a proxy for economic health at large, but institutional investors still finance their trips to the casino on credit, so its still reasonable to think that a marker for higher interest rates should bring down investor sentiment.

In the short term it is a slot machine, in the long run it is a weighing machine.

I think Buffett said that.

Just an FYI because I see a particular piece of info repeated everywhere.

The fed is NOT out to increase unemployment or lower wages. They are out to combat inflation. Making money more expensive to borrow does this. Corporations may choose to lower wages or lay folks off, but they don't have to. The fed could care less. They aren't out to get workers. Note that I'm not defending them, but you are the 4th person to claim that the fed is looking to increase unemployment and decrease wages. If inflation hit zero tomorrow, rate changes would stop.

tl;dr - please stop confusing correlation and causation.

Fed has a dual mandate. High inflation is often correlated with low unemployment and Vice versa.

This is just flatly wrong. The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation, and "combating wage growth" to therefore be an important part of decreasing inflation. What do you think "combating wage growth" means if not lowering wages and increasing unemployment?

>The head of the Federal Reserve has been very clear that he considers wage growth to be the principal contributor to inflation

This is not what he said, and despite putting it in quotes, he never said that he was "combatting wage growth". Even if he was, it doesn't matter because regardless of the source of inflation, the only thing that the Fed can do to control it is to raise interest rates. By the time the Fed did so, inflation was already outpacing wage growth, so the narrative that a worker revolution is just around the corner that the Federal Reserve wanted to suppress is completely unfounded.

It's pretty close to what he said.

> The chairman of the U.S. Federal Reserve, Jerome Powell, said his goal is “to get wages down.”

> In a press conference on May 4, Powell announced that the Fed would be raising interest rates by half a percentage and implementing policies aimed at reducing inflation in the United States, which is at its highest level in 40 years.

> According to a transcript of the presser published by the Wall Street Journal, Powell blamed this inflation crisis, which is global, not on the proxy war in Ukraine and Western sanctions on Russia, but rather on U.S. workers supposedly making too much money.

> “Employers are having difficulties filling job openings, and wages are rising at the fastest pace in many years,” Powell complained.

> The Fed’s proposed solution: bring down wages.

> There are more job vacancies than there are unemployed people in the United States, as the economy recovers from the Covid-19 pandemic.

> Powell claimed this discrepancy between job vacancies and unemployment is due to high wages, which discourage workers from taking bad, low-paying jobs with few benefits, and therefore give them too much power.

1. https://mronline.org/2022/05/26/u-s-federal-reserve-says-its...

So yes, apparently workers are getting a bit uppity and it's time to put them back into place.

> The Fed’s proposed solution: bring down wages.

Its too bad that Powell directly says in the press conference this characterizes that they believe and intend for the outcome to be continued rapid wage growth:

https://www.federalreserve.gov/mediacenter/files/FOMCprescon...

“So we think through our policies—through further healing in the labor market, higher rates, for example, of vacancy filling and things like that, and more people coming back in—we’d like to think that supply and demand will come back into balance and that, therefore, wage inflation will moderate to still high levels of wage increases, but ones that are more consistent with 2 percent inflation. That’s our expectation.”

A bunch of accusations that references a few cherry-picked quotes that was written by an author who regularly parrots Russian propaganda [1] isn't exactly a trustworthy source.

[1] https://geopoliticaleconomy.com/2022/02/20/west-ukraine-cris...

Not sure why the parent post was downvoted. Maybe it would help to give a citation for that quote?

It is not wrong to say the fed wants to increase unemployment. The fact is the fed doesn't have any other ideas so they want to do this one.

Maybe they would prefer not to, but who cares? They are going to do it anyway because they don't have any other ideas.

How many ways do you need someone to say it before you accept it?

“In the labor market, demand for workers far exceeds the supply of available workers, and nominal wages have been growing at a pace well above what would be consistent with 2 percent inflation over time. Thus, another condition we are looking for is the restoration of balance between supply and demand in the labor market.”

https://www.federalreserve.gov/newsevents/speech/powell20221...

A greater supply of workers relative to current inflation is only possible if more people are made unemployed, forced out of retirement, or there are massive changes to immigration policy. And historically, rapidly raising interest rates always results in the first.

Agreeing and just pointing out how the ultimate cost of inflation is being borne by the wage earners. Once again they lose out.

I agree with your sentiment that the Fed isn't "out to increase unemployment" but I think it's not entirely correct to ignore the trade off of raising rates. It's the low employment that allows the Fed to keep increasing rates.

The Fed has a dual mandate for a reason which I believe is based on Phillips curve (https://www.investopedia.com/terms/p/phillipscurve.asp) that inflation and unemployment is inversely correlated. Now, it's fair to question this relationship...(I don't think it's as rock solid as it used to be), but the Fed's dual mandate is based on this theory. So, in some sense the goal of lower inflation implies higher unemployment.

At least the CAPE ratio is below 30... For people whose retirement funds have basically "recovered" from the peak, that's good news for rational markets since CAPE was around 38 back then. Of course, that's just relatively speaking. CAPE is still very high; just going by that there is still room for a major crash.

For regular P/E ratio regression to the mean would mean a P/E of 15x. Right now the regular P/E is 24x. So we could still see a 33% drop in stocks due to all the bubble blowing from the fed.

https://www.multpl.com/s-p-500-pe-ratio

"The stock market did X because of Y" is nearly always a fable. It's a bedtime story to help people cope with the fact that most of what the market does on scales shorter than a year is random. The financial need is a million stories, and the headline is only slightly more relevant than the 999,999 other mutually contradictory ones.

Don't put any weight on the talking head on the news. He's just talking to hear himself talk.

I think that calling it random is a mischaractetization. It's more of "market movements are caused by a combination of millions of people trading on millions of narratives and data points, and when news breaks, much of the new associated information has already been priced in."

I would call it random in a thermodynamic sense. You can't have all of the relevant information. You know the long term fairly well but the short term is noise. Most supposed jolts are smaller than you imagine, and can disappear before any noticeable effect.

I realize the second-order thinking here, I do have to point out you're asking "why the stock market rallied on a strong jobs report." In what bizarro world is this a bad thing?

The idea they are focused on reducing employment isn't accurate.

They have several goals. One is CPI around 2%, another is full employment, another is moderate long term rates.

CPI is down significantly from peak. It's possible we'll get back to 2-3% without a ding on employment and without more interest rate increases. That's what people are likely cheering.

I think you may be right on the money. I read Bloomberg most days, and there's a through-line in a lot of their reporting on inflation of a "soft landing" to the inflation problem. What exactly this means seems to vary, although it is intended to mean something along the lines of "inflation goes back down without hurting the rest of the economy" for different ideas about what "hurting the economy" means.

The stock market seems to like the idea that we may have a "soft landing" scenario on our hands. Still, you may view this as investor optimism.

> CPI is down significantly from peak.

But that wasn't the news released on Friday. The S&P popped 1.8% upward in 1 day based on a reaction to the job numbers.

    if job_numbers == good {
      do_not_get_back_to_200_bps_federal_funds_rate = true;
    }

    if do_not_get_back_to_200_bps_federal_funds_rate {
        reprice_market_valuations(downward);
    }

Has a bug.

The stock market is an incoherent junkie standing on the edge of the precipice and trying to get its fix.

It's going to shape all news into good news. There is no alternative

https://www.spglobal.com/spdji/en/indices/strategy/sp-us-equ...

I'm from Missouri, the show-me state. Show me a fed funds rate that exceeds the inflation rate by 1% or more, because that's what it took last time we had high inflation to kill the beast.

5% fed funds is not enough to kill 5% inflation in the CPI.

Powell seems ignorant of this fact!

The current I-bond rate is 4.3%, of which 0.9% is the fixed rate. So inflation over the last 6 months has been roughly 1.7%, which is 3.4% annualized.

Wrong, it's 5%.

https://www.bls.gov/cpi/

Wrong, if you read the words around the chart in your link, that’s the 12-month trailing figure, which says nothing about GPs claim regarding the 6-month trailing figure.

You don't add percentages, you multiply them. So 1.7 x 1.7 = 2.89% annualized

That's not the proper way to multiply. If you mean to use compounding interest, the proper rate is 1.017 * 1.017 = 1.034289 = 3.428% annualized.

I rounded it to 3.4% for simplicity.

>Powell seems ignorant of this fact!

Powerll is only the chairman and basically spokesperson of the Fed. He however isn't making any interest rate decisions by himself and there is in fact a Board that votes on it. They base their decision on data and analysis fed to them by the staff under them at their respective Fed Banks.

> They base their decision on data and analysis fed to them by the staff under them at their respective Fed Banks.

The 7 members of the Board of Governors members aren't each individually associated with one or more of the 12 Federal Reserve Districts, that’s not how it works at all. There are seven members with staggered 14-year terms; three of those members serve as Chair, Vice Chair, and Vice Chair for Supervision, to which they are all appointed from the membership for four year terms, but aside from the three leadership positions and various committees that the boaed forms, the members all have general responsibility.

Next you'll tell me the president doesn't have a lever under his desk to make gas prices go up!

Technically, the President could very easily make gas prices go up. But that would require quite extraordinary means. Going down is a bit tougher.

I agree. A lot of talk how high interest rates are but to me they still are stimulative. People seem happy to earn 5% on savings as if its better than 1% with 1% inflation.

Inflation will come down soon though as lower oil price filters through along with the high inflation months of last summer.

https://archive.is/sIEib

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