US NFP data indicated a robust job market; Dow, Gold waved

·         Fed may pause in March’25, but softer than core PPI data again boosted hopes for similar core CPI data Wednesday; Dow and Gold recovered

·         Gaza war ceasefire and hostage deal may be imminent and may be announced by outgoing US President Biden by this week, just before Trump's inauguration

On Friday (10th Jan’25), the focus of the market was on the NFP/BLS job report for Dec’24, which may help the Fed to make a firm decision about any rate cuts at the next FOMC meeting on 28th Jan’25. Fed will also consider the core CPI and PPI inflation report to be released this week (blackout period). Also, the Fed will consider overall average data for at least the past three/six months and the outlook thereof before any policy decision rather than only one/two months of economic data.

On Friday, the latest BLS establishment survey flash data (seasonally adjusted) shows that the U.S. economy (Private + Public/Government sector) added +256K Non-Farm Payroll (NFP) jobs in Dec’24 against +212K sequentially (m/m); +290K yearly (y/y), higher than the median market expectations of +160K. The US NFP employment covers public (government) and private sector employees/jobs excluding the farming/agri industry.

After the latest revisions, the 3M/6M rolling average of US NFP job additions was around +170K and +165K in Dec’24. Also after the latest revisions, the 2024 (MTD) average of US NFP payroll job addition was around +186K against +180K in the prior report; +251K in 2023, and +377K in 2022. The 2024 average NFP job addition of +186K is in line with the pre-COVID longer-term (2014-19) average of +187K; i.e. the US job market is in post-COVID normal Goldilocks state, growing around +0.10% sequentially (m/m) on an average and in line with Fed’s estimate of around +175K sustainable average rate (150-200K). The employment rate is around 94.3% in 2024 on average against 93.4% in 2023 and 90.8% pre-COVID longer period (2014-19).

Although, the Fed’s preference was around +200K (175-225) in the pre-COVID era; considering a higher labor force amid higher immigration and a higher working-age population, the Fed may now prefer +225K average run rate of NFP Payroll job addition for its maximum employment mandate, while the red line may be +175K (against pre-COVID levels of +150K).

On Friday, the BLS flash data also shows the U.S. private sector (only private establishment/business employees) added +223K payroll jobs in Dec’24, the highest in nine months and against an addition of around +182K sequentially (m/m) and +214K yearly (y/y), higher than the median market expectations of +135K. The Dec’24 NFP private payroll job addition of +223K is also far higher than the ADP figure +122K (released Wednesday).

After Oct’24 flash data and revisions, the 2024 (YTM) average of US private payroll job addition was around +149K against the 2023 average of +192K, the 2022 average of +352K, and the 2021 average of +571K; the pre-COVID longer term (2014-29) average private payroll job addition was around +174K, indicating some stress in the private sector, which is being compensated by the public/government sector.

On Friday, the BLS Establishment survey flash data also shows the Government payroll, i.e., employment in Federal, state, and local governments added around +33K jobs in Dec’24 against +30K addition sequentially (m/m); +76K yearly (y/y), and higher than the market expectations of +25K. After the latest revision, the 2024 (YTM) average for the US government payroll was around +37K against +59K in 2023, +25K in 2022, and +33K in 2021. The longer-term pre-COVID (2014-19) average government was around +36K.

Overall, US NFP Payroll employment is now around 94.3% on average vs 92.2,% pre-COVID (Dec’19), private employment 80.5% vs 78.4%, and government employment 13.9% vs 13.8%.

In Dec’24, the US NFP payroll was boosted by job gains in private education & health services, leisure  & hospitality, retail trade (Festive sales boost), government, professional & business services, construction,  financial activities, and information (tech) to some extent, while dragged wholesale trade, manufacturing, mining & logging, and utilities slightly.

As per ADP private payroll data for Dec’24:

·         Hiring slowed in several industries

·         Employment in manufacturing shrank for the third straight month.

·         The labor market downshifted to a more modest pace of growth in the final month of 2024, with a slowdown in both hiring and pay gains.

·         Health care stood out in the second half of the year, creating more jobs than any other sector.

Overall, for the last twelve months, private education & healthcare services were the biggest employers for the US economy, followed by government and leisure & hospitality (travel/tourism & hotels), construction, transportation & warehousing, retail & wholesale trade, financial activities, and professional & business services, while dragged by manufacturing, mining & logging and information/techs (due to mainly AI disruption).  

Housing/construction is always a bright spot for the US economy, where present supply is lower than demand due to the increasing population/immigrants. The US is a service-heavy economy and for the last few years not been able to compete with China, the undisputed global leader in manufacturing not only consumer durable goods but also EV/Cars, and AI chips, and even has growing footprints in civilian and military airplanes/jets.

The U.S. economy is primarily a service sector-oriented economy (unlike China) and the service sector is the biggest contributor to the economy, but that too is significantly dependent on millions of immigrants, students, patients, and tourists from developing countries like India, Bangladesh, Pakistan, Sri Lanka, and other major South Asian/American/African countries and even China due to better standard of living, better democracy (freedom of speech/after speech), better pay, lower cost of living (price stability) and also currency leverage (USD being the ‘king’). But in the last few quarters, AI disruption may be also cutting human jobs in the tech industry.

The US, the world’s largest economy is the land of immigrant talents and innovation, unlike many other Western countries and Japan, suffering from demographic headwinds (ageing population/workforce). The demand for US private education and healthcare is huge among not only rich Americans but also foreigners, especially from developing countries like India, Bangladesh, and even China; US institutions also provide 100% scholarships and relocation expenses to attract talent from all over the world, especially from friendlier, but poor counties like India.

Also, big corporate families from various developing countries like India, and China usually send their children for education in the US to not only earn respectable degrees from world renewed institutions but also for business working as children of almost all big business houses in the world including the US/UK/EU are also studying in those big US educational schools/colleges/universities/ professional institutes. This is to make business deal-making easier in the future (business networking).

The US is also a manufacturing powerhouse in airplanes (civilian & military), high-end AI chips, etc, where China is still behind. The US is the destination land of bright immigrants and innovation with its relatively soft immigration policies. The US also needs a significant number of skilled, semi-skilled immigrants as prospective workers/labor force to make the overall labor market in Goldilocks state to ensure price stability.

In the US, relatively liberal immigration policies and lower unemployment than most of the G7 countries are also ensuring moderate US economic growth rather than a stagflation/deflation-like economic situation in almost all other G7 countries. The US is a land of immigrants & equal opportunities. Even an Asian-American/Indian-American may be the CEO of an American MNC giant like Google or become a VP or even President of the US, which is unthinkable in India, the biggest democracy in the world.

As per the latest revision in the establishment survey, the change in total nonfarm payroll (NFP) employment for October was revised by +7K to +43K, and the change for November was revised down by -15K to +212KK. With these revisions, NFP employment in the last two months combined was revised down by -8K than previously reported (against a 2M positive revision of +50K in the last report).

With the latest monthly revisions, the US economy added an average of around +186K payroll jobs (NFP) in 2024 (YTM) against the pre-COVID (2015-19) long-term average of +187K, and the Fed’s goldilocks target/preferred rate around +200K (175-225K), to keep an overall unemployment rate below 4.5%, which is Fed red line (long term sustainable unemployment rate keeping average core inflation around +2.0% as price stability).

The average divergence between NFP and ADP private payroll monthly job addition numbers was around 1K in 2024 against -172K in 2023; i.e. decreasing amid the increasing adoption of real-time ADP payroll processing software in private establishments. But, overall, a nominal number of US NFP Private Payroll employees is still higher by around 3000K in the BLS survey than ADP at present on an average against +5000K in pre-COVID times.

In both the BLS establishment survey and the ADP private payroll survey, individuals who hold multiple payroll jobs are usually counted multiple times based on surveys/payroll processing software. The BLS survey collects data from business establishments and counts the number of employees on their payroll, regardless of whether they have one or multiple jobs. If someone holds multiple jobs and one of those jobs uses ADP for payroll processing, only the primary job with ADP would be counted in the survey; if the multiple jobs are in another company, that does not use ADP payroll software/system, he will be not counted twice. This also explains partly about frequent divergence between ADP and BLS/EST surveys. Additionally, the BLS EST survey samples a much larger number of establishments, around one-third of all nonfarm payroll jobs, compared to the limited ADP survey which is based on data from ADP's client companies, using ADP payroll processing software/system.

The ADP Report is based on the actual anonymized and aggregated payroll data of more than 25 million U.S. employees. The BLS survey samples a much larger number of establishments, around one-third of all nonfarm payroll jobs, compared to the ADP survey which is based on data from ADP's client companies, using ADP payroll processing software/system only. The BLS surveys about 141K businesses and government agencies, representing approximately 486K individual work sites, to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls under the Current Employment Statistics (CES) program.

The larger sample size of the BLS survey allows it to provide a more comprehensive and accurate representation of the overall employment situation in the US. Furthermore, the BLS survey uses more rigorous statistical methods and adjustments to account for seasonal variations, business births/deaths, and other factors that can impact population/labor force and employment data. This helps the BLS survey provide a more reliable and consistent measure of nonfarm (NFP) payroll employment than ADP, but ADP is also providing almost real-time data.

The BLS survey is based on a sample of business establishments, while the ADP survey is based on payroll data from businesses that use ADP for payroll processing. Differences in sampling methods, sample sizes, survey periods and data collection techniques can lead to variations in the reported figures. The BLS establishment survey and the ADP private payroll survey are conducted at different times of the month, which can also contribute to variations in the reported figures.

But now after too many large revisions for the last few years and the Oct’24 huge divergence due to dual cycles, the Boeing strike, and the US election, it seems that ADP NFP payroll data may be more reliable than BLS. In any way, the BLS/US government should ensure proper employment surveys using real-time payroll processing software or some other credible digital method in this digital age (rather than using the old-fashioned unreliable/unverified telephonic survey) for the largest economy and most importantly central bank (Fed) in the world.

The Fed is also often very confused about US BLS data, especially for employment situations. Fed has to make contradictory/unexpected policy decisions and even make policy errors or often find it behind the curve for unusually large revisions even after one year. The BLS should ensure employment data is final and locked after 2 months, not 12 months to avoid wild swing and make Fed’s job more difficult.

Market Impact:

·         Wall Street slid Friday on fading hopes of the next Fed rate cut in March’25 after hotter than expected US NFP/BLS job report.

·         But Gold recovered from hawkish Fed panic low on fading hopes of an imminent Gaza war ceasefire before 20th Jan’25 Trump 2.0 inauguration day.

·         Oil surged as Biden admin may impose stricter sanctions on Russian oil (including logistics/ships carrying to Indian and Chinese refiners)-

·         On Monday, Wall Street Futures recovered from Fed panic low amid short covering and value buying coupled with renewed hopes of an imminent Gaza war ceasefire; but Gold is still in a buoyant mood on last-minute suspense.

·         On Tuesday, Wall Street Futures again got some boost on hopes of softer core CPI reading for Dec’24 after colder core PPI data; but techs were under pressure ahead of Trump's inauguration and high probable Trump tech war 2.0

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, Gold and oil

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42200) now has to sustain over 41800-41600 for any recovery and rally to 43000/43350-43800/45500 in the coming days; otherwise sustaining below 41600, DJ-30 may further fall to 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (20990) has to sustain over 20700-21000 for recovery and rally to 21500/21900-22250/222500 and further 22700-23000/23300 in the coming days; otherwise, sustaining below 20700, NQ-100 may further fall to 20500/20300-20100/19250 in the coming days.

Technically, SPX-500 (CMP: 5865), now has to sustain over 5950 for any further recovery/rally to 6025/6050-6150/6200 and 6350/6500 in the coming days; otherwise, sustaining below 5925-5900, SPX-500 may further fall to 5800-5775 and 5700/5600-5475 in the coming days.

Also, technically Gold (CMP: 2690) has to sustain over 2705 for a further rally to 2725 and further 2735/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2700-2685 may again fall to 2655/2620-2605/2600 and 2595/2575-2535/2435 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.

Technically Oil (76.50) now has to sustain over 76.00 for 79.00/80.00 and any further rally to 82.00/85.00-88.00/90.00 and 91.00-95.00; otherwise sustaining below 75.50-73.50, oil may again fall to 73.00/72.00 and 71.00/70.00-69.00/67.00 and further fall to 66.00/65.00*-62.00/60.00 in the coming days.