The number of people employed in the US non-farm sector has been drastically revised downward, so why is the market still watching?
This article uses automatic translation for some of its parts
The U.S. Department of Labor Statistics (BLS) announced on the 21st that there is a possibility that the increase in the number of workers in the past year was 28% less than announced. The current correction was drastic for the first time in 15 years, and there is a possibility that the actual state of the economy has weakened more than expected, and although it was pointed out that the Fed's interest rate cut, which is certain to start in September, took a backseat, the market reaction was weak.
The US stock index rose across the board on the 21st, the S&P 500 index rose 0.42%, the Dow rose 0.14%, and the US small cap index and chip stock index rose 1% or more. US bond yields also continued to fall (bond prices rose), $U.S. 2-Year Treasury Notes Yield (US2Y.BD)$It dropped to close to 11 basis points.
On the 21st, the Bureau of Labor Statistics of the US Department of Labor announced the estimated value of annual revisions for employment statistics for 2024, and the total number of US non-farm payers for 1 year until 2024/3 was 0.818 million, a downward revision of 0.5%.
There was already a strong sense of deceleration in the US labor market, but the actual situation shows that it has cooled down even more.
The official revised values will be announced in conjunction with 25/1. The U.S. Department of Labor issues provisional estimates every year during this period, taking into account results such as unemployment insurance.
There are also analysts who point out that there are three main reasons why the market reaction is so lukewarm.
① Until now, the market anticipated a drastic downward revision in the number of people employed in the non-farm sector and traded ahead of schedule.
② If the labor market is sluggish, the possibility that the Fed will aggressively cut interest rates will increase. This is a hedge against market concerns about the labor market, and as a result, the volatility shown by the market decreases.
③ What was announced this time is a statistical period with a time lag from 2024/4 to 2024/3. Meanwhile, the market's focus is mainly on the sluggish employment situation since the second quarter of this year.
② If the labor market is sluggish, the possibility that the Fed will aggressively cut interest rates will increase. This is a hedge against market concerns about the labor market, and as a result, the volatility shown by the market decreases.
③ What was announced this time is a statistical period with a time lag from 2024/4 to 2024/3. Meanwhile, the market's focus is mainly on the sluggish employment situation since the second quarter of this year.
Also, there is a possibility that there is an error in the revised data, and there is a possibility that employment data is also affected by immigration. Therefore, many market participants have shown various reactions to this data. Goldman Sachs, for example, believes that the Bureau of Labor Statistics overannounced the current revised value by 0.5 million people.
Brian Albrecht, chief economist at the Center for International Law and Economics, said he was not surprised that the market is calm.
This is a huge correction, but our market has been predicting this for a while, and our previous forecast was between 35 and 1 million people.
As Albrecht pointed out, Goldman Sachs previously anticipated that the highest downward correction would reach $1 million.
Eric Wallerstein, chief market strategist at Yardeni Research, agrees with Albrecht's relative optimism.
The lack of market response shows this. I think these revisions are factored into the market price, and major revisions were also anticipated. The negative correction in employment statistics simply reduced the monthly increase in the number of employed people during the period from a monthly increase of 0.241 million to an increase of 0.174 million people. This is close to the average level of employment growth in 2018 and 2019, and the market isn't too concerned about this.
Another reason investors ignore signs of weakness in the labor market is that such weakness may only increase the possibility that the Fed will cut interest rates more aggressively in the future.
The Federal Reserve raised interest rates from around zero to the 5.25% to 5.5% range in 2022/3, and maintained that level for over 1 year. However, now that inflation is weakening, investors have been factoring in interest rate cuts for a long time.
The drastic downward revision in the number of people employed in the non-farm sector in the past, which was announced last night, slightly strengthened this outlook. According to the CME Group's FedWatch tool, the probability that a 50 basis point rate cut will be implemented in September has risen from 22.5% on Monday to 30.5%.
Furthermore, most experts believe that the impact on the Federal Reserve will remain minimal since the recent revision of employment statistics has been very late.
Bank of America economist Aditya Bhave pointed out the following in Wednesday's report:
The Fed's concerns about the labor market stem from sluggish employment growth and deterioration in other indicators since the second quarter. The Federal Reserve will not be frightened by the news that the labor market was “steady rather than strong” last year, and there are “very few” changes in investors' expectations for interest rate cuts.
Also, Wallerstein pointed out that even if employment statistics deteriorate, the Fed also has the ability to play a hero to save the crisis. He pointed out that when the situation worsened, the Fed would tend to relax normal policies, and “Fed put options” still exist today.
— MooMoo News Zeber
Source: Moomoo, Bloomberg, CME FedWatch
Data time: 2024.08.22
This article uses automatic translation for some of its parts
Source: Moomoo, Bloomberg, CME FedWatch
Data time: 2024.08.22
This article uses automatic translation for some of its parts
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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KIMIHIKO : Since it's an illegal immigration relationship
Horiko Kyopital Mr. Horigo
カレー党 : Hmmm, the numbers were clearly strange.
Even though the economy is in recession like June, the unemployment rate has dropped and it's full of decorations.
But that makes the market move, so just invest with it while being wary. The recession was scary.
It was successfully carried out by the August crash, so that's stupid!
ジロ : Stock prices are a basic act.
The August crash too
I feel comfortable saying that the market has already been factored in.