The non-agricultural data starts the first highlight of the new year, and the market may get the good news it is looking forward to.
The U.S. non-agricultural employment report for December will be released at 21:30 Beijing time on Friday. The market expects non-agricultural employment to increase by 170,000 and the unemployment rate to be 3.8%.
Art Hogan, chief market strategist at B. Riley Financial, said the acceptable range is actually around 100,000 to 250,000. The market is a little excited about rate cuts and when they will be cut.
Job growth slowed in October, with a total of 150,000 new jobs added, compared with analysts’ expectations of 180,000, according to a report from the Bureau of Labor Statistics. The unemployment rate rose slightly from 3.8% to 3.9%.
The market hopes that December’s non-farm payrolls data will provide a balance point that will neither be too strong and trigger more interest rate hikes, nor be too slow and trigger concerns about the economy.
In marketing parlance, the pursuit of the middle is sometimes referred to as the “Goldilocks” number—not too hot, not too cold—and can be hard to find. But in this case, the good news is that the range looks pretty wide and the probability of good news is higher than bad news.
While Dow Jones expects nonfarm payrolls to increase by 170,000, Art Hogan, chief market strategist at B. Riley Financial, said the acceptable range is actually between 100,000 and 250,000.
“We’re much more receptive to good news now because we know it’s not going to lead to another rate hike. It’s just going to be a push for a rate cut,” Hogan said.
Judging from the current situation, the market believes that the Federal Reserve has ended raising interest rates and may start cutting interest rates as early as March, eventually lowering the benchmark interest rate by 1.5 percentage points before the end of 2024. Recent news from the Fed has pushed back at least some of that expected trajectory, while strong jobs data could reduce the likelihood of a quick easing.
“If we get above 250,000, then people may think we have to cancel the March rate cut and probably not cut rates again this year,” Hogan said. “Frankly, we know the Fed is done raising rates now.” “If that’s the case, obviously good news could be good news. That’s just such good news before you worry that hopes of a rate cut may be pushed back to the second half of the year.”
High hopes for interest rate cuts
The market got off to a rocky start in the new year as large-cap technology stocks, which are sensitive to interest rates, lagged. Traders expect the Federal Reserve to ease monetary policy, although such an aggressive rate cut could mean something more important than beating inflation and could instead signal economic weakness, forcing the Fed to take action.
Hogan said investors should take this into consideration when considering the impact of low interest rates. This market is a little excited about rate cuts and when they will come down. People need to focus on why they happen.
“If the wheels come off the economy and the Fed has to rush stimulus, that’s a bad rate cut. If the path of inflation continues toward the Fed’s target, then a rate cut is good. It’s a good rate cut. So if this Rate cuts won’t start until the second half of the year, and I don’t care.”
As always, markets will be looking not just at the overall employment numbers but at the health of the labor market.
Digging for details
As a component of inflation, wages have been a source of concern. Average hourly earnings are expected to grow by 3.9% over the past 12 months. If this proves to be accurate, it would be the first time since mid-2021 that wage growth has fallen below 4%.
The unemployment rate is expected to rise to 3.8%, which would still bring the unemployment rate below 4% for the 23rd consecutive month.
“The overall picture is that the labor market is gradually decelerating in a very orderly manner,” said Julia Pollak, chief economist at ZipRecruiter, an online job market. “I expect employment to continue its gradual cooling trend in December, down to about 150,000, and that the unemployment rate may rise slightly because so many people are entering the labor force.”
As of November, the labor force in 2023 had grown by about 3.3 million people, but this trend had little impact on the unemployment rate, which was only up 0.1 percentage points from the same period in 2022.
However, Pollack noted that hiring rates are still below pre-COVID-19 levels. A Labor Department measure of resignation rates is seen as a sign of workers’ confidence in finding new jobs. During the so-called “Great Resignation” period of 2021 and 2022, the resignation rate peaked at 3% and has now fallen to 2.2%.
Nick Bunker, director of economic research at Indeed Hiring Lab, said the overall employment picture has changed since then, with the once-hot tech sector now lagging in job openings and health care leading the way.
“We’re seeing the labor market not be as tight and hot as it has been in years past,” Bunker said. “But it has moved into a state that appears to be more sustainable.”
2024-01-05 02:43:00
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