Here’s how the Fed read today’s jobs report

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The United States has an employment problem. Hiring too much.

Currently, there are about two jobs for every unemployed person, and as a result employers have had to raise wages to attract suitable candidates.

This sounds like a good thing, but it’s good for Americans who are facing higher prices for everything from food to rent. But the Federal Reserve is not very happy with this. To fight inflation, the economy needs to cool down and higher salaries do the opposite. Rising labor costs can also be passed on to consumers by businesses, which means higher prices.

Important reasons: This inflation cycle — pay more, claim more — is exactly what the Fed is trying to squash. We are therefore paying particular attention to wage growth, which slowed slightly to 0.3% in August.

If growth had continued to accelerate, the central bank would have had more reason to raise rates aggressively at its meeting later this month. But we are not out of the woods yet. Annual wage levels remain high, rising 5.2%.

Aneta Markowska, chief financial economist at Jefferies, told me that wages will be the main driver of inflation going forward, although there are many factors behind rising prices, including supply chain and commodity pressures. “Wage increases are causing a significant amount of inflation. Supply chain problems are expected to ease in the next year, but this labor problem still persists.”

She said the only way to meet the Fed’s 2% inflation target is to slow wage growth sharply. A 0.3% increase is not enough to slow down.

Today’s report: The US unemployment rate rose to 3.7% in August, higher than expected.The economy added 315,000 jobs in the month, beating analysts’ estimates of 300,000, but made the mark Lowest monthly gain since April 2021. He also moderated monthly wage growth to 0.3%. Wall Street expected a 0.4% gain for him.

The Federal Reserve expects red-hot job growth to start cooling in its fight to moderate inflation. The report lowered market expectations for a more aggressive rate hike by the Fed at his September meeting and boosted stocks.

The numbers were somewhat relieved after last month’s employment report was a big disappointment. Over 500,000 jobs were created, his largest in five months. Average hourly earnings increased by 0.5% month-on-month.

In the weeks following the July jobs announcement, Fed officials took a more hawkish stance, saying they would keep raising rates until inflation subsided and warned of economic “pain” to come.

Fed Chairman Jerome Powell said in a speech at Jackson Hole last week that a strong labor market was the cause of inflation concerns. “The labor market has been particularly strong, but it is clearly out of balance with the demand for workers significantly exceeding the supply of available workers,” he said.

After the Fed’s final meeting in July, after the central bank hiked rates by a whopping 75 basis points, Powell told me he was watching wage growth closely. His ultimate goal, he said, is to bring inflation down and achieve a “landing that doesn’t require a huge increase in unemployment.” That can only be achieved by slowing wage growth.

To the point: Wall Street is now pricing in a 60% chance of a 75 basis point rate hike at the Federal Reserve in September. That’s down nearly 15 percent from Thursday before the jobs report was released. But there are still many ambiguities about the Fed’s future policy decisions. There’s a lot of economic data to digest in the first half of the month. Especially the August inflation rate. This is just one piece of a larger puzzle.

“The Fed will want more evidence of a softening before making any significant policy adjustments,” said David Page, head of macro research at AXA Investment Managers. “But overall, these numbers are consistent with the Fed’s 50 basis point rate hike in September.”

The US and China have finally reached an agreement on one of the biggest issues in global business: how to audit Chinese companies listed on US exchanges.

Regulators in both countries announced a deal last week that would allow U.S. authorities to inspect the audit documents of those companies. It means they may have dodged an imminent threat of being killed, reports colleague Michelle To.

The United States is wasting no time initiating these audits. Reuters reported Wednesday that authorities have selected companies such as Alibaba (BABA) and Yum China (YUMC) for the first round of inspections starting next month.

background: U.S. regulations require all companies to on the American exchange We must comply with the requirement to fully open our books by 2024. Otherwise, you will be prohibited from trading in the United States. That’s a problem for China. The country is reluctant to allow foreign regulators to inspect accounting firms, citing security concerns. The tension has already caused some Chinese companies to exit the US market.

Alibaba, which has traded shares on the New York Stock Exchange since 2014, has outlined plans to upgrade its Hong Kong listing to primary status this summer, with that expected to happen by the end of the year.

Important reasons: The long list of companies at risk goes beyond Alibaba to include China’s top tech giants such as Baidu (BIDU) and (JD).

An impending audit deadline has already led to a slowdown in equity issuance. The number of IPOs by Chinese companies in the US has dropped significantly, with eight so far this year, compared to 37 in the same period last year. The value of these deals is also shrinking. So far in 2022, companies have raised just $332 million through IPOs in the U.S. market, down from nearly $13 billion a year ago.

Odds: The deal is just the first step in formalizing audit protocols between the US and China. Whether China will actually comply remains to be seen. Last week, SEC Chief Gary Gensler warned that the company could still be deported if US authorities were unable to access its documents. “The proof is in the pudding,” he said in a statement.

Analysts at Goldman Sachs said this week there is still a 50% chance that Chinese stocks will be delisted.

Either way, this is unlikely to have much impact on other contentious issues between the US and China. But it does mean China needs Wall Street. “U.S.-China relations are reminiscent of conflict-ridden relationships where you ultimately understand that you can’t afford a divorce,” said Drew B., co-chairman of Asian accounting firm Markham Asia CPA. Bernstein said. Companies looking to enter the US market.

It goes without saying that the work-from-home boom is collapsing. The dust that collects on your peloton already does.

Now, the return-to-work era is hunting down its next victim: Zoom.

Pandemic Darling’s weak earnings outlook and plummeting stock price raise the question of whether the video conferencing company is a one-trick pony that needs to become part of a larger tech company, says my colleague Paul R. La Monica reports.

However, finding suitors can be difficult.

Zoom (ZM) has to contend with several large companies that already have similar products. Microsoft (MSFT) operates Teams and Skype. Cisco (CSCO) has WebEx. Alphabet, owner of Google (GOOG), operates Meet and Chat. Apple (AAPL) has FaceTime.

This leaves us with four other possibilities.

Meta can embed Zoom into messaging and social media apps. When Salesforce (CRM) combines Slack and Zoom, it will create a highly productive platform. Business software company Oracle (ORCL) had a reputation as a series of acquirers and was looking for ways to expand into video. We also have private equity. Zoom executives may be happy to be freed from Wall Street’s fickle quarterly earnings reports.

So far, Zoom has been quiet, or just silent, about the prospect of an acquisition.

August Post’s US Employment Report at 8:30 a.m. ET.

Coming next week: US markets are closed on Monday for Labor Day. Let’s rest for the day and see you here again on Tuesday.


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