Dow, Gold wobbled on mixed US NFP job report ahead of Powell

·         Gold slid on progress of Gaza war ceasefire; Fed may not cut before Dec’24 as 6M rolling average of core CPI is at 3.7% and unemployment rate 3.9%

On Friday the focus of the market was on the NFP/BLS job report for June, which may influence the Fed for any change in policy stance. 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 +206K payroll jobs in June against downwardly revised +218K sequentially (m/m); +240K yearly (y/y), and higher than the median market expectations of +190K.

After the latest revisions, the 4M rolling average is now around +211K, in line with the overall trend of above +200K. The 6M rolling average of NFP payroll job addition is now around +222K vs the last report of +255K against the Fed’s preference of around +200K; 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. After the latest revisions, the 2024 (MTD) average of US NFP payroll job addition was around +222K against +251K in 2023 and +377K in 2022.

Private nonfarm payrolls in the U.S. (only private establishment/business employees) added +136K payroll jobs in June from +193K sequentially (m/m) and +185K yearly (y/y), lower than the market expectations of +160K, and also lower than the ADP figure +150K (released Wednesday). Now the 2024 (YTM) average of US private payroll job addition is around +174K 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 +165K vs +209K in 2023. After the latest revisions, the 6M rolling average of NFP private job addition is now around +174K vs. +165K ADP survey, while the 4M rolling average is +167K vs 177K.

The Government payroll, i.e., employment in Federal, state, and local governments added around +70K in June against +25K addition sequentially (m/m); +55K yearly (y/y), and sharply higher than the market expectations of +30K. After the latest revision, the 2024 (YTM) average is now around +48K against +59K in 2023, and +25K and +33K in 2022-21. The 6M rolling average of US NFP government job addition is now around +48K. The 4M rolling average is now around +43K. In the election year (2024); the government payroll job addition is quite upbeat and now running around the pre-COVID levels of an average of around +50K.

In June’24, the US NFP payroll was boosted by job gains in private education & healthcare, government, construction, and wholesale trade, while dragged by professional business & services, retail trade, and manufacturing.

Overall, for the last 12 months, private education & healthcare services were the biggest employers, 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 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.

An average minimum pay/income of around $5-10K is very attractive for average Indians working in the US as they can remit a huge amount (Indian standard in LCU) back home even after meeting the cost of living in the US, for creation of assets and helping to transform their families richer. Thus immigrants from developing/under-developed countries are eager to migrate to developed economies like the US for work and a better life even at minimum pay packages, while the US also needs these ‘cheap’ immigrants to balance of labor market demand & supply equation. More supply of immigrant workers is helping to cool wage growths of the labor market and also overall inflation. But now Native American workers are also not very amused as they are losing jobs to these immigrants and it now becomes a political/election issue.

The US, the world’s largest economy is the land of immigrant talents and innovation. The demand for private education and healthcare is huge among not only rich Americans but also rich immigrants, 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 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/institutions.

Good networking among the future generation of big business houses globally will also help them make good business deals in the future and thus demand for expensive US educational institutes is huge; even Children of big political leaders & bureaucrats of various countries are studying & working in the US amid huge crisis in the education & quality employment issues back home (huge population, huge workforce, limited employment opportunities, and rampant political/normal corruption).

As per the establishment survey, the change in total nonfarm payroll (NFP) employment for April was revised down by -57K to +108K, and the change for May was revised down by -54K to +218K. With these revisions, NFP employment in the last two months combined was down by -111K than previously reported (against a 2M negative revision of -15K in the last report). With the latest monthly revisions, the US economy added an average of around +222K payroll jobs (NFP) in 2024 (YTM) against the pre-COVID (2019) average of +168K and the Fed’s goldilocks rate around +225K, to keep an overall unemployment rate below 4.5-4.00% (long term sustainable unemployment rate keeping inflation around +2.0% as price stability).

The divergence between NFP and ADP private payroll job addition numbers is now also decreasing. 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 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. Thus often there are divergences between the number of employees and number of employed persons additions in a month between these two BLS surveys (Establishment and Household).

As per household survey data, the nominal number of the civilian labor force increased by +277K in June to 168009K against the civilian population of 268438K (+190K); participation rate 62.6% vs 62.5% 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 added +116K employed persons in June, against the reduction of -408K sequentially (m/m) and addition of +297K yearly (y/y). The U.S. had around 161199K employed persons in June’24; eased from the recent life time high around 161866 scaled in Nov’23.

As per the BLS household survey, the average number of addition of employed persons for 2024 (YTM) was +3K in June 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 +222K for 2024 (YTM), +251K for 2023, and +377K for 2022; the 6M rolling average was around +222K.

The divergence between these two surveys (BLS household and establishment) is around -218K 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 is almost equivalent to the divergence.

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 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/unadjusted data, almost 10-5% 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

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 +161K to 6810K in June against 6649K sequentially (m/m) and 5996K yearly (y/y). In June’24, the U.S. unemployment rate increased to 4.1% from 4.0% sequentially (m/m), 3.6% yearly (y/y), and the highest since Nov’21.

In June’24, the market was expecting an unemployment rate unchanged at 4.0%. The 2024 (YTM) average unemployment rate is now 3.9% against the 2023 average rate of 3.6%; the current 6M rolling average of the unemployment rate is also now 3.9%, still below the Fed’s 4.0-4.5% 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 4.2-4.5% for long; 4.0% was the average range in pre-COVID times.

The U.S. Average Hourly Earnings (AHE) was around $35.00 in June’24 vs $34.90 sequentially (+0.3%) and $33.70 yearly (+3.9%); i.e. the U.S. AHE grew +3.9% yearly in June’24 against +4.1% sequentially, and in line with 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) +3.7%, still higher than the Fed’s target of around +3.0%.

On a sequential (m/m) basis, the AHE grew by +0.3% sequentially against +0.4% in June’24, and below market expectations of +0.4% gain. The average hourly earnings (AHE) for all employees on US private nonfarm payrolls edged up +$0.10 sequentially to $35.00 in June’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 June’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 +0.3% to $1200.50 in June’24 from $1197.07 sequentially, while increasing +3.9% yearly from $1159.28. This translates to average monthly earnings (AME) of around $4802.00 in June’24 against $4788.28 sequentially (+0.3%) and $4637.12 yearly (+3.6%); i.e. the AME edged up +0.3% sequentially (m/m) and +3.6% yearly (y/y) in June’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 (+0.5%) 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 brief, the June’24 NFP/BLS job report may be termed as mixed, 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 Dec’24 (after US election in Nov’24) rather than Sep’24, just ahead of the election. Also, the 6M rolling average of the US unemployment rate is around 3.9%, still below the Fed’s 4.5% red line, while core CPI +3.7%, still above the +3.0% Fed red line, below which Fed should have enough confidence for starting the eleven rate cut cycles. This may not be possible before Sep-Nov’24.

·         The average NFP job addition for the last 4/6 months is now around +211K and +222K, in line with the Fed’s higher range of estimation even after cooling to some extent from the 2022 average.

·         The overall 2023 average NFP was +251K against 377K in 2022; and 222K in 2024 (YTM) even after the negative revisions in June’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 +3K vs +93K is due to the factor of multiple job holders.

·         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 +3.7% vs +3.9% in 2023 against headline CPI growth +3.3% vs +4.1%

·         Overall, although the 6M rolling average of headline unemployment number was around 3.9%, just below the 4.2-4.5% red line, 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 core 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

·         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 Dec’24 (after the US election)

·         The June’24 US NFP/BLS job report may be termed mixed

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 cut rates in Dec’24

·         In Sep’24 Fed meeting, Fed may say it gets ‘confidence’ for going for rate cuts from Dec’24

·         One month of weak/strong job data may not change the Fed’s narrative about higher for longer stance as the 6M rolling average of headline unemployment at 3.9% average is still below 4.5%, while core CPI inflation is still around +3.7%, above +3.0% Fed’s confidence levels.

·         The Fed may start the long-awaited eleven rate cut cycle from Dec’24 and may also indicate the same by Sep-Oct ’24.

·         The Fed will be in ‘wait & watch’ mode till at least Dec’24. But at the same time Fed will continue its jawboning (forward guidance) to prepare the market to ensure the official dual mandate (maximum employment, price stability) along with an unofficial mandate to ensure financial stability (Wall Street and bond market); Fed may not allow core real bond yield (10Y) above +1.0% under any circumstances to manage government borrowing costs.

Market impact:

On Friday, Wall Street stumbled on hotter than expected NFP payroll job addition headline, but the overall impact was quite limited as a nominal number of employed persons addition was subdued, while the headline unemployment number also came higher than expected at 4.1%, Fed’s red light zone. Fed goes by the Household survey data; i.e. number of employed persons and headline unemployment number. The market was providing a higher probability of a cut in Sep’24.

Thus Wall Street Futures and also Gold recovered, but eventually slid again as the Fed may not start the rate cut cycle based on only one or two months of economic data. Looking ahead, the Fed will consider at least a 6M rolling average of core inflation and labor market data including adjusted labor market data in Aug’24 (revision). Fed Chair Powell may also share more specific guidance on the 9th July Congressional testimony. On Monday, Gold was also dragged by the progress of the Gaza war ceasefire and also increasing dominance of Left Parties in EU/European politics led by the UK and France, which may keep the US under some type of pressure for an early ceasefire in both Gaza and Ukraine war.

On Monday, Wall Street was edged up boosted by techs, materials, real estate, industrials and utilities to some extent, while dragged by communication services, energy, consumer staples, banks & and financials, healthcare, and consumer discretionary. Script-wise, Wall Street was boosted by Intel, Nvidia, Tesla, Home Depot, Boeing, Travelers, IBM, P&G, Apple, Verizon, United Health, Caterpillar and JPM, while dragged by Meta, Nike, Salesforce, Visa, McDonald’s, Cisco, Coca Cola, J&J, Merck, Walmart, and Microsoft. Boeing gained after it agreed to plead guilty to criminal fraud charges related to the 737 MAX jet crashes (less legal hurdles), while Tesla surged for 8th consecutive day after reporting upbeat sales data for Q2CY24 last week.

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

Whatever the narrative, technically Dow Future (39400) has to sustain over 39500-39850 for any further rally to 40050*/40200-40350*/40500 and may further rally to 40600-40700/41000 and even 42000-42700 in the coming days; otherwise, sustaining below 39800/39600-39400/39200 may again fall to 39000/38800-38600/38400 and further 38200/38100-37900*/37600-37400 in the coming days.

Similarly, NQ-100 Future (20250) has to sustain over 20350-20500* for a further rally to 20700-21050 in the coming days; otherwise, sustaining below 20450-20300 may again fall to 20000/19850-19750/19650* and 19450/19100-18800/18500 and 18400/18100-18000/17700 and 17600/17500-17300/17150 in the coming days.

Technically, SPX-500 (5560), now has to sustain over 5650 for any further rally in the coming days; otherwise, sustaining below 5625/5600-5575/5550 may again fall to 5500/5450-6375/5350 and 5250/5200-5175/5100 and further 5000/4900*-4850/4825 and 4745/4670-4595/4400* in the coming days.

Also, technically Gold (XAU/USD: 2325) has to sustain over 2350-2365 for a further rally to 2375/2385-2395/2400 and further to 2410/2425-2435/2455* and 2475-2500; otherwise sustaining below 2345-2320, may further fall to 2290/2275* and may further fall to 2245/2230-2220/2180 and 2155/2115-2085/2045 in the coming days.