JPow vs. The Labor Market | The Daily Peel | 2/1/23

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• More talk, less action-that's the widely expected game plan for JPow & Co. to follow at today's Fed meeting. Hey, big dogs gotta bark, I guess
• How Lisa Su and AMD are dancing all over Intel's grave
• Fed Woj Nick Timiraos is back to his dastardly ways, setting Fed policy before JPow even touches a mic
• Oh, would you look at that? Coincidentally, the U.S. reports that Russia is all of a sudden not following a nuclear arms treaty…Those naughty boys!

Employment Cost or Employees' Income?

Phew, for a second there, I was getting worried. It was almost like low-income earners were gonna start to make actual money for themselves. Thank god we killed that…

Just jokes, apes, quit monkeying around. Although, that ocean of sarcasm kind of does speak to one of the great balancing acts of economics. To lay it out for a second…

• Most people earn income from wages
• People want the highest wages possible (obviously)
• But the higher their wages, the higher the costs of goods & services will be
• So, higher wages drive inflation, which after adjusting for inflation, ends up being little to no real income gain in the long run

Sucks, doesn't it? Yeah, tell me about it. That's why the name of the game should be driving down costs for everything besides wages as much as possible. Technological innovation FTW.

But JPow doesn't really care about that right now. And as this man moves markets with every twitch of his face, let's get back to what he wants to see real quick.

Wages have spiked more so than almost ever before over the 3-year period since C-19 showed up, particularly at the lowest-earning level. While that's great for those individuals, it's not so great when that wage-push inflation leads to a $23.79 bill for a carton of eggs and 5 apples at the grocery store.

This is the exact problem Powell and his band of macro nerds have been wrestling with for the last 33 or so months. And yesterday, we got fresh data on the subject.

The Employment Cost Index, a measure of the change in aggregate labor cost per hour worked over a given period, grew at its slowest rate in over a year this past quarter. Average costs of labor to employers (aka earnings to employees) grew by just 1.0%, barely beating one consensus estimate for 1.1% growth.

That's a damn good sign on the inflation front. See, the inflation registered over the past two years-although partly attributable to supply chain disruptions and things like the avian flu-has been primarily driven by growth in wages, or cost of labor.

This is largely a result of employment demand vastly outweighing employment supply. Remember all that talk about "there's 2 jobs for every 1 unemployed person" or something like that? Yeah, like any other good or service, when demand outstrips supply, prices for that in-demand thing, which in this case is labor, will spike.

So the whole rate hike crusade has really been a crusade against employment demand. Higher rates = less money to go around = fewer projects to work on = fewer employees needed. Fair enough.

And according to this data, along with the downtrend in CPI, PCE, and other broad cost indices, it's exactly what the Fed has told us they are looking for to slow inflation. Will they actually care? Well, we'll find out at 2 pm. Stay tuned.

Markets were loving the data yesterday as the equities trade of late has been little more than guessing how one dude nicknamed "JPow" will feel about the state of the labor market. Is this what George Washington wanted?

Spotify ($SPOT) ↑ 12.72% ↑

• Listen up-Spotify really blasted analyst expectations (and probably a few speakers) yesterday when the firm dropped its Q4 earnings figures.
• Shares really started bumpin' following the release of the quarterly numbers, gaining almost 13% on the back of a wider earnings loss and lower revenues than expected. Makes sense, right?
• Of course. Thankfully, the volume was far more turned up around the firm's subscriber growth numbers. Both premium and ad-supported tiers demolished estimates and posted record quarterly growth for the Swedish king of sound.
• Monthly active users hit 489mn, 20% annualized growth, while Premium users grew to 205mn, posting 14% growth. That destroyed expectations and put CEO Daniel Ek on a pedestal on the same day that he said, "I was too ambitious in investing ahead of our revenue growth," but Wall Street must've had him muted.

General Motors ($GM) ↑ 8.35% ↑

• Most companies try to just barely make their earnings numbers, wondering if a slight beat of expectations will be enough to spike their stock
• GM did not have that problem yesterday. For a boomer-a** automaker to speed over 8% in one day, something as eye-catching as a car accident must've happened. GM eviscerated estimates for the quarter, posting EPS of $2.12 vs. $1.68 expected while beating by nearly 10% on revenue estimates as well.
• Mostly, that was due to egregiously low expectations set by analysts. Profits still fell annually, and the firm guided for continued margin pressures in FY'23. But because everyone was expecting this thing to go up in smoke, they managed to have themselves a day.