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๐ฅThe January NFP report stunned many analysts, coming in with 467K jobs being added vs the 125K expected. Goldman Sachs was even expecting a decline of -250K jobs. The ADP on Wednesday, reported a decline of -301K jobs for the month of January. This must be one of the highest discrepancies between the two reports. On surface, it looks like the US economy is powering ahead; but on closer inspection, the core impact has been the ‘adjustment’ made by the BLS as shown in the chart below (Source: Zerohedge). Maybe this is one way which President Biden hopes to address his falling ratings (wink! wink!).
๐ฅDespite the massive jobs beat, unemployment rose from 3.9% to 4.0% MoM. How does one explain this? Perhaps we can look at the Labour Participation Rate for a clue. Labour Participation Rate rose from 61.9% in December 2021 to 62.2% in January 2022. This means that more people are entering the Labour Force. Jobs growth has to maintain at the same momentum to keep pace with the increase in the Labour Force. If the jobs growth falls behind the increase in the Labour Force, the Unemployment Rate will increase.
๐ฅThe major concern with the NFP report must be the Average Hourly Earnings also came in far hotter than expected, rising +0.7% MoM vs the expected +0.5% and +5.7% YoY, vs the expectations of +5.2%. Even so, the Average Hourly Earnings is still behind the inflation curve of +7.0% YoY. The increase in the Average Hourly Earnings is a signal to companies that they will have to trim their costs to maintain their margins or pass their costs to the consumers. Noteworthy is that many have opted for the latter course of action. This will effectively push the CPI higher in the coming months.
๐ฅAs the growth in Average Hourly Earnings is behind the inflation curve, we could also see consumers cutting short their purchases and focus on cutting their credit exposure due to the expectations of higher interest rates. Not forgetting that Consumer Credit is sitting at a new record high of USD4.414T (November 2021 data). It will be interesting to see if consumers have managed to pare down their credit exposure in December 2021.
๐ฅCutting consumption will lead to lower economic activities and affect the GDP negatively.
๐ฅI have often mentioned how the rise in oil price could further fuel inflation. YTD, the price per barrel of WTI Crude has increased +17.20%. That’s a massive increase in price in just 5 weeks! Energy is consumed to produce and transport goods. This increase will be material in the coming CPI report.
๐ฅFinally, here’s a chart that could worry Central Bankers and policymakers (Source: Zerohedge, Bloomberg):
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PC Wong
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