The good-news-is-bad-news cycle continues with Thursday’s upbeat jobless report, giving further ammunition to the Federal Reserve in its rate-raising regime. And helping stocks to renew their skid.
Initial claims for U.S. jobless benefits dropped to a five-month low last week, the Department of Labor reported, as the employment market stayed strong despite the Fed’s increases. Initial claims were 193,000, a decrease of 16,000 from the previous week. Projections were for a rise in jobless claims.
The relatively positive unemployment report was a factor in resuming its sell-off ways, which were interrupted by the previous day’s blip up, according to Wall Street strategists. On Thursday, the S&P 500 slid 2.1% and the Nasdaq Composite lost 2.8%.
“Current labor market conditions will likely keep the Fed on track to aggressively tighten monetary policy at the next meeting in November,” wrote Jeffrey Roach, chief economist for LPL Financial, in a research note.
Indeed, financial futures are predicting an almost two-thirds chance that the Fed will boost its benchmark rate by another 0.75 percentage point next month. That would mark its fourth straight O.75 increase.
This all translates into higher payroll outlays, a key component of the current high inflation. Unit labor costs, the amount businesses pay workers in relation to what that labor produces, will “be at the highest since the early 1980s, and the Fed will see them as supporting a very aggressive response to the current bout of inflation,” said Bill Adams, chief economist for Comerica Bank, in a note.
“The Fed is trying very hard to inflict pain on the job market and it’s not working,” David Waddell, CEO of Waddell and Associates, told The Wall Street Journal. “That maintains the narrative that the Fed is going to have to be tighter for longer.”