Friday’s Job Report Could Be Bad News

JOB REPORTA jobs number miss will bolster the case that the Fed should wait to raise interest rates until next year and perhaps calm fears of wage inflation.

In a stock market that lives and dies on central bank stimulus, good news can be very bad indeed.

That?s because as the the job market continues to recover and we approach what the Federal Reserve considers full employment, it makes it less likely that the central bank will continue with its policy of near-zero interest rates.

Meanwhile, an announcement of strong job growth tomorrow will give further evidence that the labor market is tightening, which will likely mean that businesses will have to continue to increase what they pay their workers to stay competitive. This narrative would be corroborated by the latest reading of the employment compensation index, which showed last week that worker pay has been rising faster than at any point since the end of the recession.

Another worrying data point along these same lines is just how well corporations have been doing in squeezing out profits from their operations:

As you can see, corporate profits as a share of GDP are higher than they?ve ever been. While it?s not a given that this figure will revert to the historical mean, it does suggest that corporations are riding about as high as they can. A tightening labor market, and the wage inflation that it will likely bring, is just one obstacle Corporate America faces in its quest for continued profit growth.

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