To The Moon

Why Jan Non-Farm Payroll beat that much?

February 3rd, U.S. BLS relesed Jan non-farm payrolls, with a super number of 517,000, beat expectation of  185,000, previous number is 223,000 (revised to 260,000).

Comparison between revised non-farm payrolls and the originals

By sector, the leisure industries, medical care and other service industries have the largest increases, which is also the industry with the biggest gap before. As we mentioned, employment dismatch makes new labor flow into industries in demand.

At the same time, the unemployment rate continued to drop to 3.4%, which was lower than the expected 3.6% and lower than the previous value of 3.5%. This good result refreshed the lowest level in the same period since 1969.

Unemployment rate in the United States

It should be noted that since the NFP in January 2023, the US Department of Labor has used a new statistical caliber, aiming at the enterprise sector survey, and used the 2022 version of NAICS industry classification when dividing industries, resulting in 10% of the employment in the non-agricultural sector being assigned to other industries. But it does not affect the statistics of the total number of employed people.

Does the Fed focus on NFP?

Fed pays more attention to hourly wage now.

The Jan average hourly wage increased 4.4% year-on-year, higher than expected by 4.3%, and rose 0.3% month-on-month, which was the same as the growth rate in December.

Although the year-on-year growth rate is the lowest since August 2021, it is still higher than pre-pandemic.

Wage is important to the core PCE and inflation. The hot labor market may boost wages further.

If wages continue to grow at the recent rate of 5% to 5.5%, and assuming that productivity increases by 1% to 1.5% every year, inflation will far exceed the Fed's target of 2% for a longer time.

Employment data so good, why doesn't the market buy?

Mary Daly, chairman of the San Francisco Fed, said after the non-farm data that "the employment report data is amazing", the strong labor force is consistent with the situation shown by the initial data, and "we really have to take a restrictive policy stance before inflation will completely return to our target of 2%".

This is why after the strong non-agricultural report, the US dollar rose sharply and US stocks fell. From the Fed to market traders, there is more reason to believe that tight monetary policy will last longer.

Does employment data fully reflect the economy?

No. employment data is a lagging indicator, especially in the service industry which is insensitive to interest rates.

The data of retail, industry, real estate and other industries took the lead in showing recession. Another reason is that after the supply-side pressure since 2021, enterprises prepare for recovery to a certain extent, and then hoard labor in advance, which may make employment extremely strong.

So we can see the following phenomena appear at the same time:

1. Strong employment and steady wage growth;
2. Corporate earnings fell, as reported last week$Amazon.com(AMZN)$$Alphabet(GOOG)$$Apple(AAPL)$$Qualcomm(QCOM)$$Starbucks(SBUX)$$Meta Platforms, Inc.(META)$$Snap Inc(SNAP)$
3. reversed yield curve.

Will the recession come?

The market is also very concerned about this focus at present.

Although from the performance of US dollar index, US debt and US stocks, we can also see that there are no small differences in market funds.

1. The dollar has also retreated by 10% from its high in September last year
2. Major currencies have not made a big improvement in the correction of the US dollar, mainly due to insufficient demand. Although China's reopening has raised the market's expectations, China also hoarded a lot of stocks during the epidemic, so the demand will not blow out for the time being.
3. The reversal of US bond yields may only show part of the situation, and in the long run, the current level is closer to neutrality.

Up to now, the performance of economic data has not reached the "recession" situation.The market may have overpriced the "recession" expectation, and it is now "buying back".

However, the expectation of "easing or even cutting interest rates at the end of 2023" is likely to come back in the future. After all, it is far from time to return to easing.

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