Wall Street flat on mixed US NFP/BLS job report; Gold slid

·         Apart from fading hopes of an early Fed pivot, Gold was also affected as China/PBOC may slowdown sovereign gold buying; Fed may not cut in Sep’24

On Friday the focus of the market was on the NFP/BLS job report for May, which may influence the Fed for any revised dot plots on the 12th June meeting. The latest BLS establishment survey flash data (seasonally adjusted) shows that the U.S. economy/employers (public and private sectors), i.e., government and private sector jobs excluding the farming/agri industry (Non-Farm Payrolls-NFP) added +272K payroll jobs in May against downwardly revised +165K sequentially (m/m); +303K yearly (y/y), and sharply higher than the median market expectations of +185K (after sharply lower than expectations of +243K in previous month).

The 2M rolling average is now around +219K, in line with the overall trend of above +200K. The 6M rolling average of NFP payroll job addition is now around +255K vs the last report of +242K against the Fed’s preference of around +200K, considering a higher labor force amid higher immigration and a higher working-age population.  After the latest revisions, the 2024 (MTD) average of US NFP payroll job addition was around +248K against +251K in 2023 and +377K in 2022.

Private nonfarm payrolls in the U.S. (only private establishment/business employees) added +229K payroll jobs in May from +158K sequentially (m/m) and +254K yearly (y/y), higher than the market expectations of +170K, and also sharply higher than the ADP figure +152K (released Wednesday). Now the 2024 (YTM) average of US private payroll job addition is around +202K against the 2023 average of +192K, 2022 average of +352K, and 2021 average of +571K. On the other side, the 2024 (YTM) average of ADP private payroll addition is now around +167K vs +209K in 2023. After the latest revisions, the 6M rolling average of NFP private job addition is now around +202K vs. +166K ADP survey; i.e. there is still significant divergence.

The Government payroll, i.e., employment in Federal, state, and local governments added around +43K in May against +7K addition sequentially (m/m); +49K yearly (y/y), and sharply higher than the market expectations of +15K. After the latest revision, the 2024 (YTM) average is now around +49K against +59K in 2023, and +25K and +33K in 2022-21. The 6M rolling average of US NFP government job addition is now around +53K. In the election year (2024); the government payroll job addition is quite upbeat and now running around the pre-COVID Jan’20 levels of +60K.

In May’24, the US NFP payroll was boosted by job gains in private education & healthcare, government, leisure & hospitality, professional & business services, construction, retail trade, manufacturing, and transportation & warehousing, while dragged by only minining & logging sector; mostly in line with past 12M trends. Overall, private education & healthcare services were the biggest employers in the last 12 months, followed by government and leisure & hospitality (travel/tourism & hotels) and construction. The U.S. economy is primarily a service sector 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 countries like China, India, Bangladesh, Pakistan, Sri Lanka, and other major South Asian/American/African countries due to better life.

As per the establishment survey, the change in total nonfarm payroll (NFP) employment for March was revised down by -5K to +310K, and the change for April was revised down by -10K to +1655K. With these revisions, NFP employment in the last two months combined was down by -15K than previously reported (against a 2M negative revision of -22K in the last report). With the latest monthly revisions, the US economy added an average of around +248K payroll jobs (NFP) in 2024 (YTM) against the pre-COVID (2019) average of +168K and the Fed’s goldilocks rate around +225K, to keep overall unemployment rate below 2%.

The BLS Household survey includes payroll employees and self-employed persons such as gig workers/freelancers, contractors, and agricultural workers. In the household survey, individuals are counted only once, even if they have more than one job (based on unverified answers across 60K household samples). In the establishment survey, employees working at more than one job are counted separately for each payroll.

As per household survey data, the nominal number of the civilian labor force decreased by -250K in May’24 to 167732K against the civilian population 268248K (+182K); participation rate 62.5% vs 62.7% sequentially and against pre-COVID participation rate around 63.3%; while 2006 levels was around 66.4% (pre-GFC days).

As per the Household survey, which includes non-farm payroll jobs/employees and self-employed persons (including professionals, contractors, and agri workers), the U.S. economy has deducted -408K employed persons in May’24, against the addition of +25K sequentially (m/m) and addition of -255K yearly (y/y). The U.S. had around 161232K employed persons in May’24; eased from the recent life time high around 161866 scaled in Nov’23.

As per the BLS household survey, the number of additional employed persons for 2024 (YTM) was -20K in May against the 2023 average of +157K and 2022 average of +265K. This is sharply contrasting to average addition of payroll employees as per the BLS establishment survey, which is +248K for 2024 (YTM), +251K for 2023 and +377K for 2022; the 6M rolling average was around +255K.

The divergence between these two surveys (BLS household and establishment) is around -268K for 2024 (YTM); If we deduct the number of private sector payroll employees as per the BLS establishment survey and that of the household survey, we may have an idea of multiple job holders (employees under non-agri payroll), which was around 9130K in May’24 against 8440K sequentially (m/m) and 6161K yearly (y/y). The 2024 (YTM) rolling average of addition in multiple job holders is now around +343K, +108K in 2023, and +92K in 2022 against +77K in the number of total employed persons.

The increasing number of multiple job holders may be the reason behind a drop in the total number of employed persons and an increase in headline NFP job/employee numbers in the last few months. The US BLS NFP/Establishment survey may count multiple jobs twice (if a person is doing two jobs at a time in WFH/remote mode or even physically in two shifts), while the BLS Household survey does not count such multiple job holders as one employed person.

Overall, as per BLS seasonally adjusted data, almost 10% of employed persons in the U.S. are multiple job holders:

·         People may be taking additional full-time/part-time jobs (WFH) to meet the increasing cost of living (still 20% higher inflation than pre-COVID times),

·         Fear of sudden layoffs/salary cuts during any financial crisis (like COVID, 2007 GFC),

·         Flexibility of WFH, higher productivity for both employees and employers (part-time/freelancers may do the same work more efficiently at lower pay than regular full-time employees), flexibility, time savings, schedule freedom, and sometimes lack of experienced workers for a specifically required skill

In both the BLS establishment survey and the ADP private payroll survey, individuals who hold multiple jobs are usually counted based on their primary employment; i.e. only once. In the BLS establishment survey, individuals are counted based on the establishment where they work as their primary job. If someone holds multiple jobs, only the primary job is counted in the survey. 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.

Similarly, in the ADP private payroll survey, individuals are usually counted based on their primary job. ADP gathers payroll data from firms/companies only that use their payroll processing services/software, and it counts each individual based on their primary employment relationship with the businesses included in the survey. 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 job is in another company, which does not use ADP payroll software/system, he will be not counted twice.

Both BLS and ADP surveys focus on primary employment relationships to avoid double-counting individuals who hold multiple jobs. But neither survey captures secondary job information comprehensively, so there may be some scope of undercounting of multiple job holders in both surveys. Additionally, 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.

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 payroll employment than ADP.

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, 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.

Economic conditions and employment trends may change between the periods, each survey is conducted, leading to differences in the reported data. In brief, the higher number of private payroll jobs reported in the BLS establishment survey compared to the ADP survey is due to the broader scope of the BLS survey, its larger sample size, and the more robust statistical methods employed by the BLS to measure nonfarm payroll employment beside some anomalies in number of multiple job holders and uninsured/casual workers.

The Household survey includes payroll employees and self-employed persons such as gig workers/freelancers, contractors, and agricultural workers. In the household survey, individuals are counted only once, even if they have more than one job (based on unverified answers across 60K household samples). In the establishment survey, employees working at more than one job are counted separately for each payroll.

As per Household survey data, the nominal number of unemployed persons increased by +158K to 6649K in May’24 against 6491K sequentially (m/m) and 6116K yearly (y/y). In May’24, the U.S. unemployment rate increased to 4.0% (participation rate 62.5%) from 3.9% sequentially (m/m), 3.7% yearly (y/y), and the highest since Jan’22 of 4.0%, Fed’s red light zone.

In May’24, the market was expecting an unemployment rate unchanged at 3.9% with an unchanged labor force participation rate of 62.7%. The 2024 (YTM) average unemployment rate is now 3.8% against the 2023 average rate of 3.6%; the current 6M rolling average of the unemployment rate is also now 3.8%, still below the Fed’s 4.0% preferred zone on a sustainable basis for goldilocks nature of the US economy. The Fed may not allow the headline US unemployment rate to be above 4.0-4.2% for long; 4.0% was the average range in pre-COVID times.

The U.S. Average Hourly Earnings (AHE) was around $34.91 in May’24 vs $34.77 sequentially (+0.4%) and $33.50 yearly (+4.1%); i.e. the U.S. AHE grew +4.1% yearly in May’24 against +4.0% sequentially, and above the market expectations of +3.9% (y/y). Fed as well as the White House may be looking for an average annual growth rate of AHE around 2.75-3.00% on average against its +2.0% price stability (inflation) targets (as per the pre-COVID trend) so that there are some real wage growth, which will not cause wage inflation spiral. The average AHE growth for 2023 was around +4.5% against 2024 (YTD) +4.2%, still higher than the Fed’s target of around +3.0%.

On a sequential (m/m) basis, the AHE grew by +0.4% sequentially against +0.2% in Mar’24, and above market expectations of +0.3% gain. The average hourly earnings (AHE) for all employees on US private nonfarm payrolls edged up +$0.10 sequentially to $34.90 in May’24. The Fed needs an average sequential AHE growth of around +0.2% consistently for its price stability targets, while the 2023 average was around +0.3%, almost the same in 2024 (YTD).

The Average Weekly Hours (AWH) for all employees on U.S. nonfarm payroll was unchanged at 34.3 hours in May’24 from 34.3 hours sequentially (m/m), 34.4 hours yearly (y/y) and in line with the market expectations of 34.3 hours. Average Weekly Earnings (AWE=AWE*AWH) edged up +0.4% to $1197.40 in May’24 from $1192.60 sequentially, while increasing +3.8% yearly from $1153.80. This translates to average monthly earnings (AME) of around $4789.70 in Apr’24 against $4770.40 sequentially (+0.4%) and $4615.10 yearly (+3.8%); i.e. the AME edged up +0.4% sequentially (m/m) and +3.8% yearly (y/y) in May’24.

The average monthly growth of U.S. AME for 2023 was around +3.9% yearly (y/y) against CPI growths +4.1% (y/y); i.e., there were still no wage-inflation spirals and overall real wage growth was negative/almost nil. But in 2024 (till May), AME is growing by around +3.7% against CPI inflation of +3.3%.

Overall U.S. minimum/average NFP real wage growth is now turning positive as inflation is falling, which is positive for the Biden admin ahead of Nov’24 election despite some uptick in the headline unemployment rate. Also, data shows that immigrants are now getting more lower-end jobs (minimum pay) than native Americans. Although this may be due to a lack of native Americans working at minimum pay lower end jobs, Trump is now actively campaigning against Biden for an ‘America First’ political narrative, putting Biden at some disadvantage. In 2022-23, after all types of COVID era restrictions were withdrawn, there was a flood of legal/illegal immigrants; i.e. supply of more labor force and the previous imbalance between demand and supply got balanced to some extent, resulting in softening of wage pressure, labor market and also inflation subsequently.

In 2024 (YTM), the average rate of labor force addition is now around +91K against -20K employed persons, while the 6M rolling average of labor force addition is now around +77K against employed persons addition of -131K. In 2023, the average number of labor force additions was around +204K, +214K in 2022 and +139K in 2021. Against this, the average number of addition of employed persons was around +157K in 2023, +265K in 2022 and +511 IN 2021. In brief, after COVID era disruptions, the US labor market is now saturating; i.e. normalizing/cooling gradually

In 2022, there were 15 workers for one job posting, which increased to around 18 in 2023 and now around 20 in 2024 (YTM); i.e. on an average of around 20 prospective employees, one job posting is available. The ratio of US job openings/unemployed persons is now around 1.28 on average in 2024 (till May) against a 2023 average of 1.54 and 2022 average of 1.87 and a pre-COVID average of 1.25. Thus number of job openings is now gradually decreasing per labor/worker, which may be indicating US labor/job market is gradually rebalancing towards a goldilocks state (wage growth not too hot or not too cold), and the Fed is seeking price stability.

In brief, the May’24 NFP/BLS job report may be termed as upbeat after the soft job report sequentially, but the broader U.S. labor market is still hot enough for the Fed to continue the ‘higher for longer’; i.e. restrictive policy stance at least till H1CY24 before going for any rate cuts in late 2024, most probably from Sep’24 or Dec’24 (after US election in Nov’24) or even from Mar’25:

·         A substantial beat in the headline NFP job addition number in May’24 (+272K) came on the back of soft (below expected) addition sequentially (+165K); the average NFP job addition for the last two months is now around +219K

·         The overall 2023 average NFP was +251K against 377K in 2022; and 249K in 2024 (YTM), while the 6M rolling average is now around +255K against the Fed’s target of around +200K on an average

·         The soft payroll job addition number in Apr’24 came amid a sharp fall in sectors like leisure & hospitality and government jobs due to seasonal factors and warm winter-related factors in the previous months; people may have been in holiday mood, taking temporary unpaid leave/vacation

·         As per the Household survey, the addition of employed persons in Apr’24 was +25K against +87K addition of labor force; the same for Mar’24 was +498K vs +469K; the 2M running average was around +262K employed persons vs +278K labor forces in Apr’24

·         As per the Household survey, the overall average addition of employed persons and labor force for 2023 was around +157K vs +204K, while the same for the last six months (6M rolling average) is now -131K vs +77K is due to the factor of multiple job holders

·         Hot wage growth in May’24, and overall real Average Monthly Earnings growth is turning positive, in line with the Fed’s objective for a soft landing with real wage growth around 1.5-2.0%; overall wage growth is now around +3.8% vs +3.9% in 2023

·         Overall, although the 6M rolling average of headline unemployment number was around 3.8%, just below the 4.0% red line, and if we consider the increasing number of multiple job holders, it was almost equivalent to the decrease in the headline number of employed persons

·         Thus overall US BLS job report and also inflation for 2024 are still hot enough and the Fed may not be in a hurry to cut rates just ahead of Nov’24 US Presidential election (unlike ECB and BOC, which cut rates ahead of the election after some softening in inflation

·         Although the US labor market is now gradually cooling in various parameters after the rapid increase in immigrant workers in 2022-23; now the Fed is concerned about whether the supply of labor force will be adequate/enough to meet still elevated job postings in 2024 too considering growing domestic political compulsion (ahead of Nov’24 election) over legal/illegal immigration (cheaper labor force), now affecting employment opportunity for native Americans

·         Overall the Fed will not take any rate action based on a single month BLS/NFP job and inflation report; the Fed will take into consideration at least the 6M rolling average of core inflation and employment data before taking any rate action

·         Looking ahead, the Fed may consider H1CY24 along with overall economic data from Aug’23 till Aug’24 before going for any rate cut cycle from Sep’24 or Dec’24 (after the US election) or even from Mar’25; the Fed is on hold from Aug’23

·         The May’24 US NFP/BLS job report may be termed as ‘upbeat’ after ‘terrible’ Apr’24 report mainly due to seasonal fluctuations

Market impact:

On Friday, Wall Street stumbled on hotter than expected NFP payroll job addition headline and wage growth, but the overall impact was quite limited as a nominal number of employed persons addition tumbled, while the headline unemployment number also came higher than expected at 4.0%, Fed’s red light zone. Fed goes by the Household survey data; i.e. number of employed persons and headline unemployment number. The market is now providing a lower probability of a cut in Sep’24.

On Friday, Gold tumbled to almost 2290 zone as China/PBOC may slowdown sovereign buying, which was the main boost in the last few weeks for the unexpected rally from around $1972 to $2472; also lingering geopolitical tensions over Gaza/Israel/Iran and Russia-Ukraine along with never-ending/increasing the public deficit, debt, and devaluation along with sovereign buying from various G20 central banks, like India/RBI, Russia etc to diversify from USD assets, not in control of U.S. The US/NATO may take control or even auction Russia or any enemy country’s USD/Gold assets in their control during war times or even in peace times.

On Friday, Wall Street closed almost flat; was boosted by banks & financials, techs, healthcare, and industrials, while dragged by utilities, materials, real estate, communication services, consumer staples, energy and consumer discretionary. Script-wise, Wall Street was boosted by 3M, travelers, JPM, Apple, IBM, Intel, Nike, Visa, J&J, Walt Disney, Walt Disney, Caterpillar, and Honeywell, while dragged by United Health, Walmart, McDonald’s, Homes Depot, Verizon, Cisco, P&G, Goldman Sachs, Boeing, Amazon, Coca-Cola, Salesforce, American Express, Amgen, Nvidia, Alphabet and Microsoft.

Bottom line: Summary

·         Fed may not cut rates before Nov’24 US election

·         Fed may not cut rates at all from Sep’24, just months before Nov’24 US election to avoid any political controversy, and may/may not cut rates in Dec’24; Fed may revise dot-plots in June meeting.

·         At present, Fed’s Mar’24 dot-plots show: 75 bps rate cuts each in 2024, 2025, 2026, and -50 bps in 2027 for a neutral repo rate of +2.75%

·         But the Fed may now show the June’24 dot-plots as -100 bps rate cuts each in 2025, 2026, and -50 bps in 2027 for terminal neutral repo rate +3.00%

·         Another scenario: Fed may also cut -50 bps in Dec’24 or even in Jan’25 after the Nov’24 US election to avoid any political controversy and also to assess overall inflation and employment data for the whole of 2024.

·         One month of weak/strong job data may not change the Fed’s narrative about higher for longer stance as the headline unemployment average is still below 4%, while core CPI inflation is still around 4%

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

Whatever may be the narrative, technically Dow Future (38700) has to sustain over 39100 for any recovery to 39200//39300*-39400*/39700 and 39800/40200-40350*/40500 and may further rally to 40600-40700/41000 and even 42000-42700 in the coming days; otherwise, sustaining below 39000-38900 may further fall to 38750/38550-38450/38250 and 38100/37900*-37600/37400 in the coming days.

Similarly, NQ-100 Future (19000) has to sustain over 19200 for a further rally to 19300-19450/19775 and 20000/20200 in the coming days; otherwise, sustaining below 19100-19000/18800 may again fall to 18700-18400/18100-18000/17700 and 17600/17500-17300/17150 in the coming days.

Also, technically Gold (XAU/USD: 2290) has to sustain over 2285-2275 for any recovery to 2310/2320 -2330/2355/2365*-2375/2385 and further rally to 2400/2425-2435/2455* and 2475-2500; otherwise sustaining below 2270-2265 may further fall to 2245/2230-2220/2180 and 2155/2115-2085/2045 in the coming days.