The S&P 500
The steady increase in average hourly earnings (AHE) has been cited by the Federal Reserve for one reason that it needs to stay the course when it comes to hiking rates despite leading indicators of economic softness and signs that inflation is easing. From a financial markets perspective, the hawkish Fed has been the major hindrance for stocks and bonds given that earnings and spreads have not really budged. This is an indication that market volatility is more due to 'market stress' rather than 'economic stress'.
In December, the economy added 223,000 jobs which were better than analysts' consensus expectations of 200,000 jobs being added. It's a slight deceleration from 256,000 jobs being added in November. The unemployment rate dived to 3.5% which was below expectations of 3.7%.
The biggest factor in equity strength was AHE coming in at 0.3% monthly and 4.6% annually vs expectations of 0.5% monthly and 5.0% annually. The biggest contributors to job growth continue to be leisure and hospitality which added 67,000 jobs with other gains coming from healthcare, construction, and education.
The labor force participation rate also increased to 63.2% which remains about 1% below its February 2020 level. U6 unemployment which also counts discouraged workers and those looking to add more hours reached its lowest-ever reading at 6.5%.
Overall, the labor market's resilience continues to impress especially given that the Fed has been transparent about its efforts to create a softer labor market and has embarked on the most aggressive hiking cycle in its history. It's also evident in its latest Summary of Economic Projections (SEP) which showed the central bank expecting an increase in the unemployment rate over the next year.