America’s Hot Labour Market Fuels Job Growth in Unexpected Places

The U.S. labor market is showing surprising pockets of strength as companies directly in the crosshairs of rising interest rates hold on to or add workers.

Builders, architects and engineers, real-estate agents, vehicle manufacturers and other businesses typically sensitive to higher borrowing costs have increased employment during the opening months of 2023.

Those job gains, along with much larger increases in industries still trying to claw back workers lost during the pandemic, have added up to almost 1.6 million jobs in the first five months of 2023, outpacing economists’ forecasts.

The Labor Department will release June jobs figures on Friday.

“The labor market has continually surprised,” said Daniel Zhao, lead economist for the research team at Glassdoor, an online employment site.

Robust hiring defies theFederal Reserve

The strong job gains come despite companies and consumers facing higher borrowing costs.

The Federal Reserve raised interest rates to a 16-year high in 2023. And it is expected to increase them further later this year as part of a campaign to slow the economy, cool the labor market and tamp down inflation that is running too hot.

Some industries are defying the Fed’s efforts.

Construction employment has been one of the biggest surprises in recent months. In the past, builders have been hit especially hard when interest rates rose.

But employment in residential construction has merely levelled off in 2023, while industrial and infrastructure businesses gallop ahead.

Projects related to electric-vehicle batteries and semiconductors are driving much of the growth, spurred in part by the Chips and Science Act of 2022, which set aside $52.7 billion for financial assistance for the construction and expansion of semiconductor manufacturing facilities and other programs.

“Many of these were announced or broke ground before the Chips Act, but that added fuel to the bonfire,” said Kenneth Simonson, chief economist at Associated General Contractors of America.

Architectural and engineering firms have also added workers. The real-estate industry hasn’t shed any jobs this year despite a slowdown in single-family home sales.

American factories also often get caught in the Fed’s crosshairs when costs go up for auto loans and other personal loans. But auto and parts manufacturers have added almost 20,000 workers so far in 2023, helping to offset losses at makers of furniture, plastics and paper products.

According to Commerce Department data, car sales are still below pre pandemic levels, held back by limited supplies and high prices. But figures from the Fed show factories are trying to catch up. Auto and light-truck assemblies were above an annual pace of 11 million in April and May, the first time that number has been topped in back-to-back months since 2018.

Some employers stabilise, others heat up

The story is similar in other corners of the economy. Home-improvement and furniture stores have shed workers, for example, but department stores and warehouse clubs have added them. The final result: Overall retail employment has grown slightly so far this year.

The financial sector has also posted growth despite banking sector turmoil, with gains at insurers, brokers and financial advisers outpacing losses in banking.

Other sectors aren’t merely holding up—they are rapidly hiring. Government, leisure and hospitality and healthcare account for about 60% of all employment gains so far in 2023. The first two categories are still playing Covid-19 catch-up: Employment at restaurants, hotels, schools and in other municipal services are still below pre pandemic levels.

The picture isn’t entirely rosy.

Tech layoffs are well documented. Some economists worry that residential construction employment could be headed for a fall as a big run-up in apartment projects leads to an oversupply of units and signs of falling rents.

The number of hours people are spending on the job is declining, a possible sign that employers have less work for them. Wage growth remains strong but has eased, suggesting that demand for workers is cooling. And job growth has become more concentrated in fewer industries, possibly indicating that the breadth of the economic expansion is also narrowing.

“There are signals on the periphery that the labor market is slowing,” said Brett Ryan, senior U.S. economist at Deutsche Bank.

Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.

When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.

The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.

But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.

Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.

After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.

“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”

The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.

Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.

In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.

Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.

“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”

Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.

“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.

The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.

The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.

In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.

Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.

America’s Hot Labour Market Fuels Job Growth in Unexpected Places

Payroll increase extends to building, home selling and auto making

Robust hiring defies theFederal Reserve

Some employers stabilise, others heat up

Nvidia’s earnings will test Wall Street’s confidence in the AI boom.