NEW YORK, Jan 6, Reuters -- Twenty months after a global health crisis hampered the U.S. economy, the labor market is approaching a complete recovery from the epidemic, according to recent data from the Federal Reserve.
The stock market has been negatively affected by the recovery. On the one hand, it could mean that the labor drought, which has jacked up wages and cut in to profit margins, could be on the wane.
It could help the Fed's timeline for hiking the Fed funds target rate, which could be a boon for interest rate-sensitive financials, but it can be a boon for tech, which has benefitted from near-zero interest rates.
Wall Street gyrated this week, stumbling on Wednesday by the Fed that it is considering bringing forward its monetary tightening schedule.
Friday's payrolls report was released at 8:30 a.m. EST 1330 GMT to determine whether stocks resume last year's record rally or pull back more on rate hike fears.
After the labor market hemorrhaged more than 22 million jobs in the pandemic's opening months, recent indicators indicate that the Fed's full employment condition for reversing its COVID-era monetary accommodation could be here sooner than expected.
The Labor Department's JOLTS data shows continued employment expansion and job openings backing down from an all-time high and hiring on the upswing this week, according to the Institute for Supply Management's PMI reports.
Private employers added 807,000 jobs last month, more than double the consensus estimate, according to payrolls processor ADP's national employment index.
Add to that Thursday's report that jobless claims unexpectedly edged up last week to the lower end of the range associated with healthy labor market churn. Challenger Gray's December planned layoffs rose 28.1% from the previous month, making it the lowest annual total on record.
Jefferies economist Thomas Simons said that the jobless claims trend bodes well for December payrolls, which will be released tomorrow.
As of November, the U.S. economy had yet to recover 3.9 million of the 22.4 million jobs lost in March and April 2020.
On Wednesday, minutes from the U.S. Federal Reserve's most recent policy meeting indicated that it had taken a more hawkish pivot than many anticipated, signaling that it may shorten its timelines for tapering and inflation-taming interest rate hikes as labor market conditions continue to improve.
The S&P 500 fell almost 2% and Nasdaq fell about 3% on the appearance that the Fed could be whisking away the punch bowl sooner than many investors had hoped.
Many investors and analysts believe that the labor market participation rate, which is well below pre-pandemic levels, and wage growth, will be the most important indicator to watch on Friday, as employers struggle to attract and retain workers.
David Carter, the chief investment officer at Lenox Wealth Advisors in New York, said the participation rate is really important and can affect employment numbers. If you're not participating, you're not in the data. It is not so low unemployment that it is getting more people working, according to the perspective of the Fed. Friday's report indicates that hourly earnings growth is beginning to fall as U.S. companies grow less frantic in their efforts to hire and retain workers, which is a good sign for profit margins.
Strength in wages is driving a reverse in the labor's share of corporate income, which has fallen sharply over the last two decades, according to Ellen Zentner, chief U.S. economist at Morgan Stanley.
Inflation is closely watched by the Fed, and year-on-year wage growth held steady at 4.8% in November.
As shown by the graphic below, wages continue to soar well above the Fed's average annual 2% target rate, a state of affairs that has helped spur the central bank's increasing hawkishness:
The release of the monthly employment report often adds to the stock market's volatility, but not always as expected.
The biggest upside surprise came in 340,000 above consensus over the last year, February's print, reported on March 5, came in 340,000 above consensus. The S&P 500 went up by 1.5% that day.
The biggest miss came when April's 269,000 job adds fell short of estimates by 709,000. On May 7, the S&P 500 counterintuitively rose 0.9%, on the day of the release of the report.