November 24, 2022
  • November 24, 2022

The NFP report could gain importance again

By on July 8, 2022 0

We have seen cracks appear in the US economy in recent months. So now they’re headed to jobs reports, which puts the NFP on high alert for weakness.

Rightly so, inflation has been at the heart of central bankers‘ concerns and will continue to be for the foreseeable future. But with so many leading indicators pointing to an economic slowdown, pessimists will be watching coincident and lagging indicators (such as employment) closely to confirm their gloomy views.

Markets are feverishly anticipating a recession as leading indicators point south of losing momentum. The housing sector has sounded the alarm bells with building permits, housing starts and builder confidence plunging as interest rates rise.

Leading indicators have sounded the alarm for the US economy

Regional PMIs deteriorated ahead of the ISM manufacturing and services PMIs, which are at their weakest rates of expansion since June and May 2020 respectively. (New orders for manufacturing also contracted for the first time in 2 years). The Sales Managers’ Index contracted in June, indicating a recession, and consumer confidence hit a record high, according to the University of Michigan survey.

Cracks are also appearing in the employment situation in the United States

As my colleague Fawad points out, today’s NFP print is unlikely to deter the Fed from a 75 basis point hike this month. But when the precious NFP numbers start to tumble, the Fed’s argument that the US economy is robust also crumbles. And we are seeing early signs of this in multiple measures of employment.

  • Job postings fell at their fastest pace since April 2020 in June according to the JOLTS report. Over the past two months it has dropped -554k, including -427k in the past week.
  • Corporate layoffs rose 11.8k in June according to the Challenger report, which is its fastest pace since January 2021.
  • Continuing claims rose by 51,000 last week, its highest level since November.
  • Initial jobless claims hit their highest level since January last week.
  • The employment components for the ISM manufacturing and services sectors are contracting.

Don’t worry, a recession could be coming

As the NFP is actually a lagging report, it will be one of the last to follow leading indicators down. And when we see unemployment start to rise and overall job growth wanes, it will be hard for the Fed to ignore. And that could provide a reason for the Fed to at least halt its hike cycle, as a shattered labor market is ripe for deflation. So that still leaves room for a decent NFP today, but it’s a report that I think will grow in importance in the coming months.

S&P 500: bullish rally or corrective rebound?

I’ve seen a few headlines regarding Wal Street’s fourth consecutive day of rally, but I’m less impressed. The bullish volatility doesn’t exactly scream ‘risk taking’ and volumes have fallen while prices have risen, suggesting that the upside move is not due to the buying initiative, but to profit taking.

Moreover, the index remains in a downtrend channel, and this could just be the third wave of a 3 wave correction. Therefore, I would consider bearish setups below 4000 or the downtrend line – whichever shows a bearish reversal pattern first.