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US nonfarm payrolls increased by 216,000 in December, the US Bureau of Labor Statistics reported on Friday. Economists surveyed by Dow Jones expected the payroll number to come in at 170,000, even as October and November's print were revised lower to 173,000 and 105,000 from 199,000 and 150,000, respectively. On the other hand, the unemployment rate remained unchanged at 3.7%, while the forecast was for the jobless rate to rise to 3.8%.
The higher-than-expected payroll data has temporarily dented market expectations that the Fed will resort to five rate cuts this year, starting from March. In its summary of economic projections released in December, Fed officials anticipated a 75 basis point cut in 2024, potentially lowering the benchmark Fed Funds rate from the present 5.25%-5.50% to 4.50%-4.75%.
US unemployment rate
Meanwhile, the real unemployment rate, a broader measure of unemployment that includes discouraged workers and those holding part-time jobs and is a part of the household survey, rose to 7.1%, while the number of people employed declined by 683,000.
However, fed funds futures traders are not willing to give up easily. They're still pricing in a nearly 64% chance that the Fed will start lowering rates in March, with three cuts expected in the first half of the year, the CME FedWatch Tool showed.
Source: CMEGroup website
Key highlights of the nonfarm payroll and the unemployment report
The better-than-expected nonfarm payroll employment was led by continued growth in government, healthcare, construction, and the social assistance sectors, while the number of jobs in the transportation and warehousing industries declined.
The employment report comprises two monthly surveys- the household and establishment surveys. The former measures the labor force statistics, such as unemployment by demographic characteristics, and the latter gauges nonfarm employment, hours worked, and industrywise earnings.
According to the household survey, the number of people without jobs was unchanged at 6.3 million in December, compared to 5.7 million a year ago when the unemployment rate was 3.5%. The number of persons without jobs over the long term (27 weeks or more) was at 1.2 million, almost unchanged year-on-year, accounting for 19.7% of the total unemployed. Meanwhile, the labor force participation rate stood at 62.5%, and the unemployment-population ratio at 60.1%, both down 0.3 percentage points month-on-month. Lastly, 4.22 million people worked part-time for economic reasons, little changed from November, while those not in the labor force but keen to find work edged higher to 5.7 million.
The establishment survey showed payroll employment rose by 2.7 million in 2023, sharply below the 4.8 million the year earlier. Job growth in December was primarily in the government (52,000), healthcare (38,000), social assistance (21,000), and construction (17,000). On the contrary, employment declined in transportation and warehousing (23,000), primarily from a 32,000 job loss in couriers and messengers.
The average hourly earnings for all employees in the private sector nonfarm payrolls rose by 15 cents or 0.4% to $34.27, unchanged on the month, while the average workweek slipped by 0.1 hours to 34.3 hours in December.
Source: bls.gov
Economists' reaction to the unemployment rate report
BlackRock's chief investment officer of the global fixed-income markets said the December jobs report is a sign that the US economy is cooling slowly on the back of a solid demand for labor. He further noted that the high headline payroll number undoubtedly indicates that the labor market is nowhere close to falling off a cliff and should come as a reality check for investors who expect the Fed to cut rates aggressively.
Andrew Patterson, a senior economist at Vanguard, thinks the road ahead for inflation to head back to the Fed's 2% target remains bumpy and believes that the decision by US central bank officials of when they should start cutting interest rates will be pushed back to the second half of 2024.
Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles, is convinced that the US labor market is not as tight as it looks. Despite the strong payroll numbers in December, he still anticipates the Fed to cut rates at least twice in the first half of 2024.
Market reaction to the December employment report
The US stock markets ended the first Friday of the new year with small gains in a volatile session that saw the major stock benchmarks swinging both ways after the higher-than-expected nonfarm payroll numbers surprised markets, damping expectations that the Fed will start cutting rates as early as March. The benchmarks also registered the first weekly loss in ten as traders looked ahead to the consumer inflation data and quarterly earnings results from big banks later this week.
The Dow Jones Industrial Average (DJIA) ticked 0.07% or 25.77 points higher to end Friday's session at 37,466.11, the S&P 500 climbed 0.18% or 8.56 points to 4,697.24, and the Nasdaq 100 rose 0.15% or 23.97 points to 16,305.98.
After hitting 7-month lows in October, equities rebounded and were on a roll for the last couple of months, with the primary benchmarks notching up ten successive weekly winners following a dovish pivot from Federal Reserve policymakers. The sharp rally has now reached an inflection point where investors believe the markets are overbought amid elevated levels of uncertainty in the economic numbers and how the Fed will use it to determine interest rate cuts. This is why the inflation data and the upcoming corporate earnings season later in the week will help define the market direction over the next 2-3 months.
In the forex markets, the US dollar ended flat at 102.41 against its major counterparts in a volatile session after the US employment report pointed to a resilient labor market. However, the US currency rose more than 1% on the week amid subdued risk appetite ahead of Thursday's consumer inflation report for December. The US dollar was unchanged against the euro at 1.0941 and the yen at 144.59, while it slid by 0.27% versus the pound sterling to end at 1.2716 on Friday.
The rally in the US dollar comes on the back of a rebound in US Treasury yields as market participants lowered their expectations of the pace and scale of interest rate cuts in 2024. As of Friday, Fed Funds traders were pricing in a 64% chance that policymakers will lower rates by 25-basis points in March. Thursday's inflation data might confirm the view.
US dollar index- Daily chart
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US Treasury yields swung wildly to mostly end with gains on Friday after the solid December jobs report was offset by a weaker-than-expected reading of the services sector for the same month. The yield on the 2-year Treasury Note slipped 0.04 basis points to 4.383%, the yield on the 10-year T Note rose 4.9 basis points to 4.050%, and the 30-year Treasury bond yield rose 5.1 basis points to 4.205%.
Earlier on Friday, yields spiked to three-week highs after the higher-than-expected nonfarm payrolls surprised markets. But 30 minutes into the morning session, they nosedived, with the 10-year TNote falling below 4% after the Institute for Supply Management (ISM) said business conditions at service-oriented companies fell to seven-month lows of 50.6% in December from 52.7% the month earlier, while job growth in the sector tumbled to 43.3, the lowest since July 2020, from 50.7 during the corresponding period.
Chris Gunster, the head of fixed income at Fidelis Capital, expects further volatility in the fixed-income markets amid the issuance of additional Treasury and corporate bonds over the next few weeks. He sees a disconnect between market expectations from Federal Reserve officials and the economic data and predicts yields will remain high in the foreseeable future.
Technical View
Nvidia Corporation (NVDA)
Nvidia pushed higher in the second half of the holiday-shortened week to end Friday's session at $490.97. But, despite the rebound, the stock ended with weekly losses of 0.86%. NVDA is interestingly poised between near-term support at $479.00, a close below which prices could slide toward $463.00, the long-term trendline support, and resistance in the $502.00-$505.00 zone (recent all-time highs), and the breakout of the ascending triangle pattern.
Nvidia remains bullish on charts, and a close above $505.00 should drive the stock toward $550.00-$555.00, with the 3-6 months target at $640.00-$650.00. Only successive closes below $463.00 will negate the view.
Strategy:
Buy Nvidia if it closes above $505.00 or breaks $515.00. Place a stop loss at $495.00 and exit as prices approach $550.00-$555.00. Long-term investors can continue holding the stock until $650.00, but ensure to trail your profits.
Long positions can also be initiated if prices drop to $465.00-$470.00, with a stop and reverse at $450.00 for a profit target of $500.00.
Nvidia- Daily chart
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Netflix Inc. (NFLX)
Netflix ended the first week of 2024 at $474.06, down 2.63%. The stock recently pulled back from nearly two-year highs and is struggling to regain the levels since then. The primary trend remains bullish, with the support/resistance at $393.00 and $650.00 respectively. However, in the near term, prices could oscillate between the support zone at $445.00 and $465.00, good levels to go long, and resistance at $485.00.
Strategy
Go long in the $445.00-$465.00 zone, with a stop-and-reverse at $438.00, and exit as the stock approaches the near-term resistance at $510.00-$514.00. Positional traders can initiate long positions if Netflix closes above $514.00 or breaks $525.00. Place a stop at $475.00 and exit as prices approach $650.00. Ensure to trail your positional trades.
Netflix- Daily chart
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