Still, stronger-than-expected U.S. jobs numbers in an environment of rising inflation are fueling expectations ahead of the end of the year. However, job creation lacks momentum and wage growth is slowing, meaning household finances are under increasing pressure.

Increase in payrolls from the usual ‘Big 3’

That’s strong, with nonfarm payrolls rising 88k compared to the consensus estimate of 172k, plus a 93k upward revision in data from the past two months. Private payrolls are expected to be 89k compared to 120k, while the government added 52k. Meanwhile, wages remained at 4.3 percent and wage growth slowed to 3.4 percent from 3.6 percent.

The breakdown shows that it is the usual three sectors of leisure and hospitality (+70k), government (+52k) and private education and healthcare services (+40k) that are benefiting. That means every other sector in the U.S. added only 10,000 jobs overall. The chart below shows how these ‘Big 3’ sectors account for every single job added since December 2022. All other sectors – manufacturing, technology, energy, retail, transportation and logistics, financial services, business services, etc., have lost jobs on balance in the last 3-plus years. So, while this is a very good report at the headline level, the lack of magnitude in the job creation story remains a key theme.

Expectations for a Fed hike are up, but there is still a long way to go.

It’s possible that the strong entertainment and hospitality numbers boosted by the World Cup starting next week, but it feels a little early. Additionally, a 51k increase in local and state government looks a bit too strong in the current environment. The elephant in the room is why the government jobs data is so strong when business surveys, like the reports, point to a decline in employment while continuing to point to a net deficit from earlier in the week and the number of vacancies actually falling on a daily basis?

Household surveys, which are used to calculate the unemployment rate, are more consistent than these private sector surveys. It showed a rise in employment of 149k in May, but this followed four straight months of declines while the median unemployment rate rose to 11.6 weeks.

Despite the continued lack of messaging in the labor market data, we now have December’s price increase outright. This is understandable given the Fed’s erratic pivot and the warm inflation prints of recent months. Punishment could increase further with Wednesday’s print expecting headline inflation to rise from 3.8% to 4.2% and 2.8% to 2.9%. However, the squeeze on household spending power is intensifying with real household disposable income falling for three straight months and consumer confidence hovering near all-time lows. There is a long way to go before the end of the year, and we still lean toward a final rate cut assuming a deal can be reached to reopen the Strait of Hormuz.

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