Wall Street stumbled from soft NFP high on Trump 2.0 concern

·         Wall Street is now concerned about Trump tantrum 2.0 policy uncertainty, and the renewed Israel-Iran ‘war of words’; Gold got some boost

·         Although, the Oct’24 US NJP job addition looks terrible at +12K, if we consider 175K likely temporary lost jobs due to dual cyclones, Boeing strike, and US election, it should be around +190K

·         Fed set to cut -25 bps In November and December to stay ahead of the curve; despite stalled core disinflation and a stable employment situation

·         Fed is cutting rates back-to-back as Fed may quicken QT tapering to close the same at around $6.75-6.50 Fed B/S levels by Dec’24-Mar’25

·         Fed reduced its B/S from around $7.70T in Dec’24 to almost $7.00T by Oct’24; For Financial stability, Fed may keep its B/S size at around 22% of estimated US nominal GDP $30T by CY25

On Friday, Wall Street Futures surged on short covering after being in red for the last few days. Wall Street Futures were boosted by upbeat earnings from Amazon and upbeat guidance by Intel (solid Festival season sales and the Chinese market). After the highly expected ‘terrible’ NFP private job addition data for Oct’24 (distorted due to Cyclones, Boeing strike, and US election) along with negative revision for the last two months, Wall Street Futures surged; also upbeat report card of Chevron helped Dow, while Apple dragged. Gold was also boosted briefly on hopes & hopes of Fed rate cuts In September after the soft job and ISM MFG PMI report, while soft jobless claims also dragged to some extent.

But Gold also stumbled after Iran said they were technologically nuclear weapons (nuke)-ready, could develop it on short notice, and use it against any country (Israel) that systematically threatened it for extinction. Also, Iran may soon retaliate against Israel’s ‘too heavy retaliation’ through Iraqi soil/proxies. Although the market is now concerned about the vicious cycle of the ‘war-war-‘ game between Israel and Iran, if Iran indeed develops nukes, it will eventually ensure broader peace not only with Israel but also in the entire Middle East, especially in burning Lebanon, Syria, etc. Iranian nuke will ensure no big/serious conflict/war between Israel and Iran and we may see a durable peace in Gaza.

Now from geo-politics to economics, on Friday (1st Nov’24), the focus of the market was on the NFP/BLS job report for Oct’24, which may help the Fed to make a firm decision about any rate cuts at the 7th Nov’24 FOMC meeting. But the Fed may also consider Sep’24 core inflation data (CPI+PCE) before going for any rate cuts/hold move. Also, the Fed may consider overall average data for at least the past three/six months before any policy decision rather than only one month of economic data.

On Friday, the latest BLS establishment survey flash data (seasonally adjusted) shows that the U.S. economy (Private + Public/Government) added +12K Non-Farm Payroll (NFP) jobs in Oct’24 against +223K sequentially (m/m); +165K yearly (y/y), lower than the median market expectations of +113K and the lowest addition since at least Feb’19 (not considering COVID times low). The US NFP employment covers public (government) and private sector employees/jobs excluding the farming/agri industry.

After the latest revisions (without considering the preliminary NFP benchmark revision published on 21st Aug’24), the 6M rolling average (6MRA) of US NFP job additions was around +132K in Oct’24, lower than +167K in the prior report. Also after the latest revisions, the 2024 (MTD) average of US NFP payroll job addition was around +170K against +200K in the prior report; +251K in 2023, and +377K in 2022. The Q3CY24 average payroll job addition is now around +148K against the Q2CY24 figure of +147K and +267K in Q1CY224.

Although, the Fed’s preference was around +200K 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). Currently, some Fed policymakers are also bracing even an average payroll addition of around 150K or even 100K (?) as a reasonable strength of the US job market after seeing subdued job reports in the last few months.

On Friday, the BLS flash data also shows the U.S. private economy (only private establishment/business employees) contracted -28K private payroll jobs in Oct’24’24 from +192K sequentially (m/m) and +98K yearly (y/y), lower than the market expectations of +90K, and the ADP figure +233K (released Wednesday). The Oct’24 US Private Payroll job contraction of -28K was also the lowest and 1st contraction since Dec’20 post-COVID disruption (-236k).

After Oct’24 flash data and revisions, the 2024 (YTM) average of US private payroll job addition was around +132K against the 2023 average of +192K, the 2022 average of +352K, and the 2021 average of +571K. On the other side, the 2024 (YTM) average of ADP private payroll addition was around +160K in Sep’24; and +209K in 2023.

After the latest revisions, the 6M rolling average of NFP private job addition is now around +101K vs +139K prior report and +153K ADP survey. The divergence (difference) between NFP and ADP private payroll addition numbers is now gradually converging/ reducing amid the increasing adoption of ADP payroll processing software in private establishments. However, a nominal number of private employees remains around 3K higher in BLS/NFP data than ADP as all private business firms/establishments are not using ADP payroll processing software. Also, the survey periods of ADP and BLS NFP periods are different.

On Friday, the BLS Establishment survey flash data also shows the Government payroll, i.e., employment in Federal, state, and local governments added around +40K jobs in Oct’24 against +31K addition sequentially (m/m); +67K yearly (y/y), and higher than the market expectations of +23K.

After the latest revision, the 2024 (YTM) average for the US government payroll was around +38K against +59K in 2023, +25K in 2022, and +33K in 2021. The 6M rolling average of US NFP government job addition is now around +31K. In the election year (2024); the government payroll job addition was quite upbeat and was running around the pre-COVID levels of an average of around +50K after some slowdown in Q2CY24, mainly led by local and state governments.

In Oct’24, the US NFP payroll was boosted by job gains in private education & health services, government, wholesale trade, construction, and information to some extent, while dragged by manufacturing, professional & business services, retail trade, and even leisure & hospitality amid the disruptive effect of dual cyclones, Boeing strike (Manufacturing sector) and even US election. In August, September, and also in October US construction jobs got a boost after the end of the rainy season.

Overall, for the last six 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, while dragged by professional & business services, and financial activities, manufacturing, 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. On a 12-month basis, except for manufacturing, and Mining & logging, almost all private US job sectors are in slight, moderate to deep green.

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 (legal/illegal), 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 months, 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. The demand for private education and healthcare is huge among not only rich Americans but also rich immigrants/visitors, especially from developing countries like India, Bangladesh, and even China. Also, big corporate families from various developing countries like India usually send their children for education in the US to not only earn respectable degrees from world renewed institutions but also to network 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.

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. 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.

As per the latest revision in the establishment survey, the change in total nonfarm payroll (NFP) employment for August was revised down by -81K to +78K, and the change for September was revised down by -31K to +223K. With these revisions, NFP employment in the last two months combined was down by -122K than previously reported (against a 2M positive revision of +72K in the last report).

With the latest monthly revisions, the US economy added an average of around +170K payroll jobs (NFP) in 2024 (YTM) against the pre-COVID (2015-19) long-term average of +187K, and the Fed’s goldilocks rate around +200K (175-225K), to keep an overall unemployment rate below 4.5% Fed red line (long term sustainable unemployment rate keeping average core inflation around +2.0% as price stability). If we take into account various disruptions in Oct’24 (dual cyclones, Boeing strike, and US election) and also Oct’24 ADP private payroll job addition figure of +233K, we may see around +350K NFP job addition in the BLS establishment survey for Nov and by Dec’24 the average BLS/NFP job addition may be above +200K for 2024.

The divergence between NFP and ADP private payroll monthly job addition numbers was almost nil on a 2024 YTM basis (till September 24) 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 over 3000K in the BLS survey than ADP.

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.

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 method in this digital age for the largest economy and most important central bank (Fed) in the world. 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.

The 2024-YTM average of the US NFP employment rate (NFP Employees/Labor Force-HH survey) was around 94.3% in Oct’24 against 93.4% in 2023 and 92.8% in 2022.

On Friday, the BLS household (HH) survey data indicated the nominal number of the US civilian labor force decreased by -220K in Oct’24 to 168479K against the civilian working age (above 16-yrs) population of 269289K (+209K); labor force participation rate 62.6% vs 62.7% sequentially and against pre-COVID average participation rate around 63.1%; while 2006 levels was around 66.4% (pre-GFC days).

The current 6MRA of labor force addition was around +128K against the Non-Institutional Civilian population (working age above 16-yrs) growth of +204K, while the labor force participation rate at 62.6%.

As per the BLS Household (HH) survey, the U.S. economy has deducted -368K employed persons in Oct’24, against the addition of +430K sequentially (m/m) and deduction of -270K yearly (y/y). The U.S. has 161496K employed persons in Oct’24. As per the BLS household survey, the average number of addition of employed persons for 2024 (YTM) was +31K in Oct’24 against the 2023 average of +157K, the 2022 average of +265K, and the long-term pre-COVID average of +178K.

The Fed may also prefer around +200K (175-225K) average additions of US employed persons as a sustainable long-term trend rate to achieve/sustain maximum employment. The US BLS HH survey includes non-farm payroll (NFP) employees (Private + Public/Govt) and self-employed persons (including professionals, contractors, and agri workers).

As per Household survey data, the nominal number of unemployed persons increased by +148K to 6983K in Oct’24 against 6835K sequentially (m/m) and 6443K yearly (y/y). In Oct’24, the U.S. unemployment rate remains unchanged at 4.1% from 4.1 % sequentially (m/m), 3.8% yearly (y/y), and in line with the market expectations of 4.1%, but far higher than pre-COVID (Dec’19) levels 3.6%.

The 2024 (YTM) average unemployment rate was 4.0% in Oct’24 and against the 2023 average rate of 3.6%; the current 6M rolling average of the unemployment rate was 4.1%, still below the Fed’s 4.5% red line. Fed’s minimum unemployment may be around 3.5% on a durable basis; i.e. 96.5% employment rate, which is now around 96.0%. Fed also regarded a 4.0% average. 

Further fine prints of BLS H/H survey data indicate non-agri /non-farm (NFP) employees at 150171K (-177K) and 11325K (-241K) self-employed persons & agri workers, totaling 161496K employed persons in Oct’24 (-368K).

Among this, non-agri self-employed persons (small business owners, professionals, contractors, etc) were 9171K (-64K) and agri-related workers and self-employed persons at 2154K (-177K) in Oct’24.

Multiple jobholders, higher unemployment rate, and frequent divergence between BLS EST Payroll and HH surveys:

 

Fine details of the US NFP/BLS job report indicate YTD-2024 average non-agri/non-firm (NFP) payroll employees (PVT+GOVT) were around 158411K in the establishment survey against 149740K in the household survey. The average divergence/difference between these two surveys (BLS establishment and household) was around +8672K for 2024 (YTM); If we deduct the number of NFP 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 is almost equivalent to this divergence.

Overall, as per BLS seasonally adjusted data, now almost 5.2% of employed persons in the U.S. are multiple job holders +agri wage holders against 5.0% in 2023, 4.8% in 2022, and 4.6% in 2021 on average. The increasing number of multiple job holders over the years may be explained by:

·         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)

·         The 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),

·         Sometimes lack of experienced workers for a specifically required skill; a flexible mix of WFH/WFO (remote/onsite) may be more positive for overall labor productivity and lower inflation

The increasing number of multiple job holders may be the reason behind a drop in the total number of employed persons despite an increase in headline NFP job/employee numbers in the last few months. In the US, out of almost 96% employed persons (as maximum employment of existing labor force, almost 94% of the labor force is NFP payroll employees and the remaining 2% are self-employed & agri workers).

The US BLS NFP/Establishment survey may count multiple jobs multiple times (if a person is doing two or more multiple payroll jobs at a time in WFH/remote mode or even physically in two/three shifts), while the BLS Household survey does count such multiple job holders as one employed person. The BLS Household survey includes payroll employees and self-employed persons such as professionals, gig workers/freelancers, contractors, and also 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 contractual payroll job are counted separately for each payroll. Thus often there are divergences between the number of employees and employed person additions in a month between these two BLS surveys (Establishment and Household).

Bottom line:

The projected Fed rate cut of -50 bps by Dec’24 not be assured as US core disinflation has stalled around 3.0% in Q3CY24, while average unemployment remains stable around 4.0% Fed’s longer-term goal/targets; Fed should cut -25 bps in Dec’24 after a pause in Nov’24, as core inflation still needs to go down by around 1.0% and unemployment rate around -0.5%. Thus Fed has to act in a balancing way. Also if Trump indeed wins on 5th Nov’24, the Fed may wait for his policy, which may boost inflation and also deficit. But as the Fed didn’t try to talk down against almost 98% implied market probability of a 25 bps rate cut on 7th Nov’24, the Fed may also cut by -25 bps to stay ahead of the curve. But the Fed may also want to see Nov’24 job data after a transient disruption due to Hurricane/Cyclone Helena in mid-Oct’24.

Market Impact:

On Friday Wall Street Futures closed in the green on hopes & hopes of a Fed pivot and Nov’24 rate cut. Wall Street Futures were boosted by upbeat earnings from Amazon and upbeat guidance by Intel (about Festival season sales and solid Chinese market); also upbeat report card of Chevron helped Dow, while Apple dragged. The S&P 500 and NQ-100 rose 0.4% and 0.8%, respectively, while the Dow Jones (DJ-30) gained 288 points.

Amazon surged on growth in cloud and advertising, and Intel jumped on positive revenue and guidance. Boeing gained after a tentative union agreement, Chevron surged on an earnings beat, and Microsoft booked gains after earlier post-earnings slumps, while Apple slipped on subdued guidance.

Gold was also boosted briefly on hopes & hopes of Fed rate cuts In September after the soft job and ISM MFG PMI report, while soft jobless claims helped. But Gold also stumbled after Iran said they were technologically nuclear-ready and could develop and use it against any country (Israel) that systematically threatened it for extinction. Also, Iran may soon retaliate against Israel’s ‘too heavy retaliation’ through Iraqi soil/proxies. Although the market is now concerned about the vicious cycle of the ‘war-war-‘ game between Israel and Iran, if Iran indeed develops nukes, it will eventually ensure broader peace not only with Israel but also in the entire Middle East, especially in burning Lebanon, Syria, etc. Iranian nuke will ensure no big/serious conflict/war between Israel and Iran and we may see a durable peace in Gaza.

On early Monday, Wall Street was under stress on renewed Israel-Iran tensions and the concern of Trump tantrum 2.0. Nvidia surged ahead of its inclusion in the Dow Jones Industrial Average next week, replacing Intel. Also, Boeing, Chevron, Home Depot, and Walmart were in green, while Apple dragged.

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

Looking ahead, whatever the fundamental narrative, technically Dow Future (42500) now has to sustain over 42800 for any further rally to 42900/43050-43250/43500* and 43700/44000-44500/44800 in the coming days; otherwise sustaining below 42750/42700-42600/650, DJ-30 may again fall to 42400/42300-42100/42000 and 41800/41500-41200/41000* and further 40700/40300-40100/40000* and 39700/394350-39000*/38500 in the coming days.

Similarly, NQ-100 Future (20800) has to sustain over 21100 for a further rally to 21300/21700-21900/22050 and even 23000 levels in the coming days; otherwise, sustaining below 21050/21000-20950/20850, NQ-100 may again fall to 20700/20500-20300/20100 and 19900/19700-19600/19350 to 19100/18900 in the coming days.

Technically, SPX-500 (5880), now has to sustain over 5975 for any further rally to 6000/6050-6100/6150 in the coming days; otherwise, sustaining below 5900-5950/5900-5850/5800, may again fall to 5725-5675/5625-5600/5575*-5550/5500-5475/5450 and 5425/5390-5370/5300* and 5250/5100* and further 5050/4950*-4850/4750 in the coming days.

Also, technically Gold (XAU/USD: 2785) has to sustain over 2810 for a further rally to 2825/2850-2875/2900 and 2925/2950-2975/3000 in the coming days; otherwise sustaining below 2805/2800-2795/2790, may again fall to 2775/2750-2725/2700* and 2675/2650-2625/2600 and 2590/2575-2540*/2500 and further to 2470*/2440-2425/2400-2375/2330-2275 in the coming days (depending upon Fed rate cuts and Gaza/Ukraine war trajectory).