Navigating Volatility

TRADITIONAL MARKET

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MACRO MARKETS

This past Friday, according to nonfarm payrolls data, the USA added 517 000 jobs last month and a revision on the December data up to 260 000. The number broke through all estimates by banks, economists etc., as the unemployment rate dropped to 3.4%, the lowest number in 53 years. The gains were across all sectors.

Average hourly earnings ticked up slightly than expected at 4.4%. It is lower and trending down from last month when it was 4.65%.

The labour force participation rate, the share of the population working or looking for work, climbed to 62.4%, and the rate for workers ages 25-54 also increased. Removing the effects of those adjustments, the Labor Department said the overall participation rate was unchanged.

It is possible that this was some seasonal shock. We could also see a revision lower next month. The labour market remains very tight and puts more work on the Fed to ensure this tight labour doesn’t result in higher wage or goods inflation.

The report also contained a yearly update to the establishment survey that produces the payroll figures. Job growth was revised higher for the final six months of 2022.

Why are payrolls so important?

The market is looking at labour data concerning inflation to see if the economy is healthy and if a soft landing is a real potential. An economy that can provide a high level of employment is typically healthy. During a recession, many people lose their jobs and struggle to find new employment. The unemployment rate rises, which reduces the competition for labour and can drive down wage growth/inflation. Another reason economists follow the jobs report so closely is that it provides insight into the types of jobs people get. This can help them identify economic trends.