Stocks Set to Drop After Jobs Data Fans Inflation Worries

December 2, 2022

NEW YORK – Wall Street is set to fall when trading opens Friday on renewed worries about inflation after a report showed wages for U.S. workers are accelerating faster than expected.

Futures for U.S. stock indexes fell sharply immediately after the government released the stronger-than-expected data on both wages and hiring. The report raised concerns that inflation may prove to be even stickier than feared, which could prevent the Federal Reserve from easing back on its big interest-rate hikes that are hurting the economy.

Futures for the S&P 500 were down 1.6% with a little more than half an hour before the opening bell for trading of stocks. Futures for the Dow were down 1.2% and for the Nasdaq 100 were down 2.1%.

The government report showed that wages for workers rose 5.1% last month from a year earlier. That’s an acceleration from October’s 4.9% gain and easily topped economists’ expectations for a slowdown. While that’s good news for workers who are struggling to keep up with inflation, the Federal Reserve worries too-strong gains could cause high inflation to become further entrenched in the economy.

Employers also added 263,000 jobs last month, above forecasts for 200,00, while the unemployment rate held steady at 3.7%.

Fed officials have signaled that the unemployment rate needs to be at least 4% to slow inflation. It’s in the midst of raising interest rates quickly in hopes of slowing the economy just enough to undercut inflation.

The stronger-than-expected jobs and wage data sent Treasury yields jumping on expectations the Fed may have be more aggressive about raising rates to get inflation under control.

The yield on the two-year Treasury jumped to 4.34% from 4.24% late Thursday. The 10-year yield, which helps set rates for mortgages and many other loans, rose to 3.59% from 3.51%.

In overseas trading, optimism over moves by China to ease strict pandemic controls appeared to have faded, replaced by worries over indications recession may be looming.

Signs of weakening trade, especially for export dependent economies in Asia, have deepened worries over slowing growth in China and its implications for the global economy.

Tokyo’s Nikkei 225 index lost 1.6% to 27,777.90 and the Hang Seng in Hong Kong fell 0.3% to 18,675.35. The Kospi in Seoul shed 1.8% to 2,434.33.

The Shanghai Composite index gave up 0.3% to 3,156.14 and Australia’s S&P/ASX 200 slipped 0.7% to 7,301.50.

Bangkok’s SET index lost 0.5% and the Sensex in Mumbai was down 0.7%.

Germany’s DAX rose 0.5% at midday, while the CAC 40 in Paris was flat and Britain’s FTSE 100 gave up 0.2%.

Oil prices inched back up as the European Union was edging closer to a $60-per-barrel price cap on Russian oil in a maneuver designed to keep Russian oil flowing into global markets while clamping down on President Vladimir Putin’s ability to fund his war in Ukraine.

Markets slid on Thursday following a big rally Wednesday when Fed Chair Jerome Powell the central bank could begin moderating its pace of rate hikes at its next meeting in mid-December. The Fed, though, has been very clear about its intent to continue raising interest rates until it is sure that inflation is cooling.

A big concern for Wall Street has been whether the Fed can tame rates without sending the economy into a recession as it hits the brakes on growth. Businesses are seeing demand fall for a wide range of goods as inflation squeezes wallets. Analysts generally expect the U.S. to dip into a recession, even if it is mild and short, at some point in 2023.


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