Hospitality Surge Gives Fed No Choice After Strong Jobs Update
The biggest contribution to Friday’s really strong NFP establishment 172,000 jobs created was 70,000 in leisure and hospitality. That’s very consistent with the ongoing theme of experiential expenditure rather than goods expenditure (especially on housing-related goods).
We had upward revisions of 93,000 — which is really strong, bringing the three-month average up to 79,000 (which is likely higher than “replacement” rate at this stage).
The Household Survey showed job gains of 149,000, breaking a three-month streak of job losses.
While that wasn’t enough to change the unemployment rate, the underemployment rate ticked lower to 8.1% — an improvement.
The birth/death model, which has been a big source of the annual downward revisions, came in at 158,000, lower than last May’s 199,000, which gives me some comfort the data might be better quality than last year.
This was a solid-to-very-strong report across the board. I liked that the jobs seemed to be created in areas, where stocks are doing well (travel and leisure). Still, there are too many jobs in healthcare to indicate a really robust economy.
This is all consistent with ADP and the big increase in JOLTS jobs available. But there are still some questions:
- The JOLT hires rate ticked lower (April data) and the QUIT rate (which I find compelling) dropped to a cycle low of 1.9%
- ISM Services Employment dropped to 47.9 (below 50 is retraction). The S&P PMI’s also showed employment that was weak. That is inconsistent with the hiring spree in services.
- Everything in almost every sentiment or confidence survey has been and remains miserable. The jobs “plentiful” number is the lowest since COVID.
Bottom Line
Now there is no way the Federal Reserve can appear dovish at the next meeting. That’s because:
- Inflation and, more importantly, affordability, remain concerns
- The ongoing conflict in Iran (where even the president mentioned the potential of the Strait being closed until Labor Day)
- Jobs above the replacement rate take away the “we need a cut for jobs” rhetoric. I remain skeptical, given the margin for error in these reports, and how much contradictory evidence is out there.
This is not an ideal rate environment for stocks near all-time highs that need to absorb some large IPOs. Also, for the first time in months, there are some questions around the AI buildout story.
