Fresh Highs | NFP | Labor Market coming into better balance | GDPNOW

Fresh Highs | NFP | Labor Market coming into better balance | GDPNOW | Weekly Moves

We had string of fresh highs on S&P 500, Gold and Bitcoin. U.S Yields had a wide move lower post the benign NFP numbers. USD Index dropped right into the 0.618% Fibo support level of 102.28 of the move from 100.62 to 104.96 and closed the week at 102.80.

On the NFP data, NFP employment rose 275K for the month of Feb. The prior month numbers were revised significantly lower to 229K for Jan and 290K for Dec, a cumulative downward revision of 167K. The Labor Force Participation rate stayed at 62.5% and the U/R inched higher to 3.90% from prior 3.70%. The Unemployment level increased by 334K as Labor Force rose by 150K and Employment reduced by 184K. The Average Hourly Earnings (AHE) rose 0.14% mom and the Average Weekly Hours rose rose by 0.10 hrs to 34.30 hrs.

After bottoming at 165K in Oct, NFP employment has steadily increased and averages at 231K over the 6 month period. Over a 3 month horizon, AHE have risen at an average 0.33% mom and over a 12 month horizon have risen at average 0.35% mom.

The uptick in U/R , deceleration in pace of growth in AHE and downward revision to previous 2 numbers was very encouraging for the outlook of U.S rate cut cycle and the Fed Fund markets ended the week pricing in 100 bps of rate cuts into 2024 cumulatively. Over the week, the ISM sub-component showed employment index at 48.0 and prices paid at 58.60 from prior 64.0. The jobless claims data , likewise showed a trend of labor market coming into better balance.

Interestingly, the job vacany rate (Job Openings / (Job Openings + Employed)) has steadily eased to 5.21% and the vacancies to unemployed people ratio has eased to 1.37 from the peaks of 7% and 2.00 respectively in March 2022.

A framework which I find useful in thinking about the payroll data came from Governor Waller who showed that if restrictive monetary policy could lower the vacancy rate from 7.5 percent to 4.5 percent via a significant decline in job vacancies, there would be a relatively small increase in the unemployment rate—from 3.7 percent to 4.2 percent and that if the vacancy rate continued to fall below 4.5 percent there would be a significant increase in the unemployment rate. In terms of the employment picture, we are clearly moving in that direction.

Does the recent data print, materially alter the picture ? Think, No. Labor Market continues to move in better balance, Inflation pressures have eased but there remains uncertainty on the outlook of inflation, Atlanta Fed GDPNow estimates Q1 GDP growth at 2.50%. We are clearly and surely moving in the direction of Rate cuts but the when and how much is a big question and the next week's CPI release could offer insights.

Last month, CPI release had DXY peak at 104.96 as underlying details showed Core CPI at 0.40% with Core Services Inflation at 0.66% and Core Goods inflation at -0.32%. The Shelter component (36.20% wt) at 0.63%. Elevated Core CPI numbers, a reading above 0.30% mom (Avg 12m CPI rise 0.32%) could push the FFR cuts back to the 75 bps level.

So reckon the USD momentum lower could stall ahead of the CPI release.

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