Market Update 6/2/2023 – Job Blockbuster! Fed surprising burst of US hiring : 517,000 jobs.
For the past year, Fed had been on an unknown mission to cool down the job market to ease the nation’s curb the worst inflation over the past decades. The Fed had been overseeing the U.S. economy’s job gain out of concern for employment. In spite of that, the sudden January outbreak induced the rise of the hiring rate yet with slowing wages growth.
How is the unemployment rate impacted by inflation and recession?
The current economic model implemented seems too good to be true as a job market with strong hiring and a low unemployment rate, the main two sentiments that fuel higher inflation. Hence, will indirectly swiftly progress toward recession. When the unemployment rate decrease, companies will have to battle against the wage rate in order to combat the competitive hiring demand. The impact later will pass to the customer as a company will charge with higher product price tag due to the extension of labor cost. As a result, higher-paid workers will have more money to spend. Plus, it will also increase money circulation in the market. The whole trend fee toward inflation pressure.
The job market hasn't been cooperating.
In the last report on February 3, 2023. The Fed announced hiring job sizzle with 517,000 vacancies and that led to a slump of an unemployment rate of 3.4%. The number hit the lowest since 1969.
Economists had an estimation of 185,000 jobs in January. Thus, the number is almost 3 fold— 332,000 gap of estimation.
“This is a labor market on heat,’’ said Seema Shah, chief global strategist at Principal Asset Management.
The large gap left economists and analysts wondering what the Fed would do next. Interest rates have been raised aggressively without any sign of slowed hiring, indicating a possible recession is just around the corner.
Seema Shah implies “to see the Fed stop raising rates and entertain ideas of rate cuts when there is such explosive economic news coming in.”
Spike Job Burst vs Major-Tech & Finance Layoff
Shortly after major tech companies announced cut earnings last week along with their extensive layoff and the recent labor announcement left the public in confusion. This implies that even after a layoff, there is nothing to worry about as there are more than 0.5M vacancies in the market. Even though it is a good implication for workers, it gives the perception that the economy is booming smoothly after covid and the tech slump. Yet, it induces high inflation as it will accelerate wage growth in order to grab the best talent.
“If you want good people, you have to pay,” said Stew Leonard, CEO of Stew Leonard, a supermarket chain in the US.
The great resignation after the trend of ‘quiet firing’, ‘quiet quitting’, and ‘angry apply’ evolves in the current working trend. It contributes to adding to the number of jobs as workers are willing to drop the current task for better pay, and better working conditions. Employment had moved beyond just loyalty and service.
The announcement will likely worsen the condition as the number will continue to add up. The sudden influx will make those who are on verge of resigning proceed with a decision without worries. ‘There are plentiful of vacancy anyway’.
Recession — correlation of Fed’s hiring burst and inflation.
The report suggests the possibility of the inflation rate declining even with employers adding jobs This recession will be a lot different than the previous recession. This new generation has a totally different concern compared to the previous generation. Thus, higher money circulates in the markets will act adversely compared to the previous recession.
Study shows that millennials and gen-Z spend more and invest less. The spending habit worsens after covid. ‘With the virus, sudden sickness, and death along the line, why not spend and enjoy life?’ The YOLO behavior will contribute to lessening the inflation rate even with higher job numbers in the market.
Basically, the current model is driven by ‘wage inflation’.
The Fed’s inverse strategy.
In an effort to slow the job market and contain inflation, the Fed has raised its key rate eight times since March.
Due to the ‘great resignation’, companies hang tightly onto the ones they have. Putting aside some high-profile layoffs at big tech and finance companies like Microsoft, Meta, Amazon, and others, most workers enjoy job security even after recession signs approach.
Last Wednesday, U.S. Labor Department reported 11M job opening in December. On average, there are two vacancies per unemployed American.
The market's reaction
After the report, the market slipped before recover in the latter half of the trading session.
The S&P 500 and Nasdaq Composite indexes each lost around 1% before paring losses to around 0.3% each as of 10:30 am.
In a reverse of the impact, crypto bounced entering the green zone with BTC trading of 0.6% higher and ETH also jumping 1.4% higher.
The reflection of Tech Companies Earnings.
Apple — Apple announced its revenue with a dropped of 5% in Q4, 2022 to $117.2B. The number trailed off from Wall Street forecast estimation. Apple’s share slide 4% after hours trading last Thursday, February 3, 2023.
“We have significant work underway to improve all aspects of our cost structure, in support of our investments in our highest growth priorities to deliver long-term, profitable growth,” CFO Ruth Porat said in a statement alongside the earnings report.
Meta — Facebook and Instagram parent company reported its earning last Wednesday, February 1, 2023 of its third quarter of revenue decline and a significant 55% profit drop of 2022.
Nevertheless, the drop didn’t crash investor decisions. Meta’s stock climbed 23% on February 3, 2023, after Meta addressed its focus and investment plans. The pledged to focus on efficiency and announced its plan to boost share repurchase by $40B.
Amazon — reported Q4, 2022 revenue of $149.2B, an increase of 9% from 2021. Beating Wall Street’s expectations. Along with their announcement of Q1 2023 revenue estimation of $121B to $126B, compared to analyst estimation of $125.1B.
Shares of Amazon fell nearly 4% in after-hours trading Thursday, February 3, 2023.
An upbeat jobs report usually signals a firmer economy for Wall Street. In spite of this, it could be regarded as a worrisome sign after a covid procedure. The Fed’s current strategy may seem to be too good to be true at first glance. In contrast, it can also appear feasible as a result of changing working habits and spending habits, which might lead to better economic conditions in the future.
The key-takeaways/market update is a series by AxeHedge, which serves as an initiative to bring compact and informative In/Visible Talks recaps/takeaways on leading brands and investment events happening around the globe.
Do keep an eye out for our posts by subscribing to our channel and social media.
None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance