The market could become volatile regarding the February 4 employment statistics release
In the employment statistics released on February 4, it is hard to predict what data will come out and how the market will react to it.
(1) The employment statistics may be quite weak due to special circumstances.
In response to the spread of the Omicron variant, January’s employment statistics may show a weak gain in nonfarm payrolls, or even a decline. In the Bureau of Labor Statistics’ establishment survey, people who were employed but absent due to illness and thus not paid are counted as unemployed.
Moreover, the market forecast for January’s month-over-month increase in nonfarm payrolls is 150,000, but as noted above, it is believed to be weaker than that.
However, this is distorted by the special circumstance of the Omicron spread, and as seen in the ISM Employment Index, the underlying employment conditions are considered solid.
(A) In the ADP employment statistics released on February 2*, private-sector employment fell by 301,000 from the previous month. The disruption to business activity caused by the spread of the coronavirus seems to have weighed on results.
ADP employment statistics = Data based on payroll services provided by Automatic Data Processing (ADP) Co., Ltd. to businesses. It differs from the nonfarm payrolls released by the Bureau of Labor Statistics because government employment is not included, only private sector employment.
(B) In January, initial unemployment claims also rose from December. (More new unemployment → less employment)
(2) No apparent impact on monetary policy, but…?
(A) The two mandates of the Federal Reserve are to maximize employment and to ensure price stability, but now the focus is more on price stability than on maximizing employment.
With the January U.S. employment statistics due to be released on the 4th, White House officials are trying to lower expectations in advance. They explain that because workers who took short-term sick leave due to the Omicron variant infection may be counted as unemployed, unemployment figures could overstate the true level.
Several Biden administration officials note that the week the employment survey was conducted overlapped with the peak period of illness-related absence after the holiday season. U.S. financial authorities have issued similar warnings. According to Bloomberg economists survey, January’s nonfarm payrolls are expected to rise by a median of 150,000 from the previous month—the slowest pace since late 2020—while the unemployment rate is expected to remain at 3.9%, the same as the previous month.
NEC Chair Brian Deese told CNBC in an interview on the 1st that because illness-related absence due to Omicron is classified as unemployment, the figure could be misleading, and “we were not focusing on month-to-month movements anyway, but this would be especially true for January.”
Federal Reserve Bank of Philadelphia President Patrick Harker told Bloomberg TV on the same day that due to the spread of Omicron infections, “the employment statistics to be released this weekend are likely to be weak,” and St. Louis Fed President James Bullard also said January data would likely be poor for the same reason.
President Biden has repeatedly highlighted employment statistics as reflecting a robust economic recovery and has emphasized improvements in the unemployment rate to counter criticism over rapid price increases. Note that the unemployment rate is compiled from a different survey than payrolls, and the treatment of unpaid short-term sickness differs, so January could remain extremely low.
(3) Market reaction if the employment statistics are weak
The following reactions may occur, though the market may have already priced them in. In that case, the market response is difficult to predict.Market reaction is difficult to predict.
(A) In the foreign exchange market, dollar selling may accelerate
(B) In the bond market, medium- to long-term bonds may be bought (yields fall)
(C) In the stock market, the Nasdaq may be bought (P/E compression pressure eases)
(1) The graphs of ADP employment statistics and Labor Department statistics, and the graphs showing the relationship between nonfarm payrolls and new unemployment insurance claims, are as follows.
