Inflation concerns weighed on Wall Street, leaving major indexes mixed after another bumpy day of trading. The S&P 500 ended down 0.1% and the Nasdaq lost 0.2% after falling even earlier in the day. The Dow ended slightly higher. A government report showing wages rose last month spooked investors as it could mean the Federal Reserve will be less able to ease its fight against inflation. The two-year Treasury yield, which tends to track expectations of future Fed action, rose after the release of the report, which also showed hiring was stronger than expected.
THIS IS A BREAKING NEWS UPDATE. AP’s previous story follows below.
Inflation worries linger on Wall Street on Friday after a report showed US workers’ wages were accelerating, which is good news for them but could fuel even higher inflation for the country.
The S&P 500 was down 0.6% in afternoon trading and on track to erase much of what had been a good week of gains. The Dow Jones Industrial Average was down 109 points, or 0.3%, at 34,281 as of 2:30 p.m. EST, while the Nasdaq composite was down 0.8%.
Shares had been rising since last month on hopes that the worst of the country’s high inflation had already passed. This fueled expectations that the Federal Reserve would scale back the intensity of its steep interest rate hikes. These hikes aim to reduce inflation by slowing the economy and lowering the prices of stocks and other investments.
But Friday’s jobs report showed workers’ wages rose 5.1% last month from a year earlier. This was an acceleration from October’s 4.9% gain and easily exceeded economists’ expectations for a slowdown.
Such wage increases are helpful to workers struggling to cope with soaring prices of basic necessities. The Federal Reserve is concerned that too large gains could cause inflation to become more entrenched in the economy. This is because wages are a large part of the costs for companies in the service sector, and they may end up raising their own prices further to cover the higher salaries of their employees.
“Inflation is definitely moving in the right direction,” said Adam Abbas, co-head of fixed income at Harris Associates, “but the market is still going to have to go through some risk calibration which we are stabilizing at 3% for 4% underlying inflation against a natural and steady decline towards the 2% target set by the Fed.
“After such a strong move over the past three and a half weeks,” Abbas said of expectations for Fed easing, “maybe the market has gotten a bit ahead of it. -same”.
Across the economy, employers added 263,000 jobs last month. That beat economists’ forecast for 200,000, while the jobless rate held steady at 3.7%. Many Americans also continue to remain entirely out of the labor market, with a higher percentage of people not working or looking for work than before the pandemic, which could increase pressure on employers to raise wages. .
A job market that remains much stronger than expected could further complicate an already delicate situation for the Fed. It tries to slow the economy just enough to prevent the buying activity that fuels inflation, without going so far as to create a recession. The Fed has signaled that it will likely push the unemployment rate to at least 4.4% in its fight against inflation.
“Probably the most important number for the Fed is the payroll number,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.
Many traders are still betting on the Fed to scale back its rate hikes at its next meeting later this month, as several central bank officials have hinted. Traders are still widely expecting the Fed to raise its overnight rate on Dec. 14 by half a percentage point, after rising three-quarters of a point four times in a row.
But expectations are rising for what the Fed will do in 2023. Treasury yields jumped immediately after the jobs report came out on speculation that the Fed might finally raise rates higher than expected moments before. .
The two-year Treasury yield jumped to 4.29% from 4.24% Thursday night. The 10-year yield, which helps set rates on mortgages and many other loans, fell to 3.52% from 3.51%.
“Another month with a strong jobs report and scorching wage gains is a reality check for where we are in the fight against inflation,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.
The strong jobs data follows several mixed reports on the economy. The country’s manufacturing activity shrank in November for the first time in 30 months, for example, as the housing industry struggles under the weight of much higher mortgage rates. These data points had raised hopes that the Fed’s rate hikes would take effect and eventually bring inflation down.
While Friday’s report showed that hiring was stronger than expected, it also clearly demonstrated that the downward trend in hiring across the country is continuing. November’s job gains matched the low seen in April 2021, which was the weakest since December 2020, when the number of jobs fell.
More and more economists still predict that the US economy will fall into recession next year, largely due to rising interest rates.
“While the Fed isn’t backing down from ‘a mere half a percentage point hike’ in December, it still has no idea what it will do in 2023,” Allpsring’s Jacobsen said.
AP Business Writers Elaine Kurtenbach and Matt Ott contributed. Veiga reported from Los Angeles.
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