Nearing the end of 2023, investors are paying extra attention to some of the indicators that could influence Fed rate decisions as the market calls for a Fed rate cut grow. Remember the Fed's two big goals — curbing inflation and maximizing employment? To achieve both goals, inflation and employment data are the focus of all economic indicators.

Employment indicators were released in early December, including the October Job Vacancies and Labor Flow (JOLTS) report, the ADP private employment report for November, and the BLS November employment report. The market has given some easing expectations for all three indicators, while the first two of the three indicators are slowing as expected. JOB VACANCIES IN JOLTS, IN PARTICULAR, HAVE FALLEN TO THEIR LOWEST LEVEL IN TWO AND A HALF YEARS, WHICH IS ENOUGH TO PUT ANALYSTS ON THE FACE.

But the problem comes in the third indicator, where the December 8 non-farm employment report exceeded market expectations. The news is that markets reacted differently to the report: stocks were shaking upward, while gold and Treasury futures were “diving”.

Why are all employment reports and the data so different? What is the trend of the employment market in 2024? How do these employment indicators affect the stock market? Let's answer one by one below.

Let's take a look at three recently released key employment reports

1. JOB VACANCIES IN JOLTS

1. The latest Job Vacancy and Labor Flow Summary (JOLTS) report from the U.S. Bureau of Labor Statistics showed that the number of job vacancies fell to 87.3 million in October, below the expected 930 million, the lowest level in 2.5 years. In October, 656 million people were unemployed and 87.3 million were employed, which equates to 1.34 jobs for every unemployed worker.

1. ADP Non-Agricultural Employment

1. Here's another look at the ADP nonfarm employment data we call “smallholder farmers.”

1. ADP non-farm private employment added 10.3 million in November, slightly slower than October's addition of 10.6 million private sector jobs. The data was also below expectations of 13,000, the second smallest monthly increase since January 2021.

1. ADP classifies total non-farm private employment into two categories: goods and services. The United States is primarily a service economy, with a decrease of 14,000 in goods production and 117,000 in service provision in November, demonstrating the resilience of the services industry.

1. Non-agricultural employment

1. The “drivers” and “movers” of the recent economy are the nonfarm employment report released by the U.S. Bureau of Labor Statistics on Dec. 8.

1. Data showed seasonally adjusted non-farm employment increased by 199,000 in November, slightly better than the 190,000 expected by Dow Jones and ahead of the 150,000 in October. CNBC said the figure was driven by a sharp increase in government hiring and workers returning after strikes in the auto and entertainment industries. Unemployment fell to 3.7%, below the expected 3.9%, due to a slight increase in labor participation.

Why is there such a gap in employment data?

1. In our Macro Fundamentals “How to Use Labor Market Indicators to Invest,” we detail several of the jobs market indicators that the Fed is most concerned about. At the same time, we also mentioned these indicators. Employment indicators for different institutions may differ on short-term trends due to different statistical diameters, different calculation methods, etc.

1. Indicators of the labor market provide economists with a wealth of data, the most widely known of which is the non-agricultural employment published by the Labor Bureau. However, ADP releases new non-farm private employment data every month a few days before we receive our long-awaited employment report, which is why many investors focus on ADP employment.

1. Differences between non-farm employment and ADP employment

• Coverage Differences: Nonagricultural is a survey of U.S. business and government agencies by the Labor Department, while ADP is non-agricultural by ADP research agencies that are directed only to commercial organizations (not including governments).

• Release time difference: Non-farm releases on the first Friday of each month, while ADP non-farm releases on the first two days of non-farm. ADP non-farmers can allow the market to form certain expectations of non-farmers in advance, which is why it is referred to by market traders as “smallholder farmers”.

• Trend Differences: Non-farm and ADP non-farm look consistent from a long-term perspective, but both tend to lag behind in the short term; the more likely it is during times of labor market volatility, the more likely it is to diverge between the results of the two surveys.

• Conclusion: Market participants and Fed officials pay more attention to non-farm employment data, so non-farm data will be more authoritative and more important.

In addition, JOLTS reports are also a key measure of employment.

We can divide the employment market into the labor supply side, which represents the “working people and the unemployed”, and the demand side, which is represented by the “working people and vacancies” side.

On the supply side, the employed represent the current supply that has been met, while the unemployed represent the potential supply that has not yet been met.

On the demand side, employees represent current needs that have been met by the user unit, and vacancies represent potential needs that have not been met.

Although published by the Bureau of Labor Statistics, unlike non-agricultural employment reports, JOLTS reports are surveys of job vacancies, hiring, and retirements that help measure labor demand. In contrast, the addition of non-farm jobs and the unemployment rate in the non-farm employment report measure the supply side of the labor market.

What is the trend of the employment market in 2024?

Rapid job growth is a feature of the economy in 2021 and 2022, according to US Bank analysis. New employment growth remains stable in 2023, but the pace has slowed considerably.

So, what about 2024?

Analysts at morningstar believe that the job market is steadily recovering to its pre-pandemic state. Employment is expected to recover in the first half of 2024 as the economy continues to slow and the labor market will recover until economic growth resumes in 2025-26.

The main trends expected to be seen next year include:

• Employment resumes downward trend: U.S. gross domestic product (GDP) growth has maintained strong momentum in recent quarters, so it's no surprise to see a scorching job market. However, analysts expect the economy to slow down soon and continue near or slightly below zero until the first half of 2024.

• Corporate layoffs or more efficient work: Businesses have begun to reduce their hours — the average hours per worker fell by 0.6% year-over-year in the six months prior to 2023 — analysts expect the reduction in working hours to be a harbinger of slowing employment. In addition, the number of temporary jobs has also been declining over the past year, an indicator that tends to portend broader layoffs.

• WAGE GROWTH SHOULD CONTINUE TO SLOW: THE AVERAGE ANNUAL GROWTH RATE OF PRIVATE HOURLY WAGES IN THE PAST THREE MONTHS WAS ONLY 3.4%, DOWN SIGNIFICANTLY FROM 4.5% AT THE BEGINNING OF 2023. As high inflation in 2022 caused people's real wages to not rise or shrink, the current wage increases could offset the effects of the inflationary period. But with reduced labor demand, this impact should return to normal in 2024.

• Job vacancy rates also declined significantly: Job vacancy rates fell from a record 7.3% in March 2022 to an average of 5.5% over the past three months. Analysts believe that while the decline in demand for industrial enterprises may not be due to excessive growth in employee wages, there is no doubt that this indicator is normalizing.

What impact will the employment market have on the stock market?

For investors, it must be nice to see a slowdown in employment, as the Fed won't restart rate hikes and is likely to accelerate its rate-cutting agenda next year.

Normalizing inflation and a slowing employment market are undoubtedly good news for the stock market. On the one hand, we expect to see long-term Treasury yields continue to decline, favoring corporate and personal borrowing; on the other hand, the impact of expected interest rate cuts, investor confidence may support the stock market's rise.

But anything is two-sided, slowing employment means slowing down the economy. Going into 2024, the US economy will face a lot of resistance. First, the U.S. government still faces the risk of a shutdown if lawmakers don't take action. At the same time, the US presidential election in 2024 is likely to have a huge impact on both the stock market and the world economy.

The economy of a country can be said to be the core of the stock market, so many analysts have warned that there may be risks to the US stock market as the economy slows next year. The economy will contract at some point in the first quarter of next year, the senior managing director of Evercore's equities division said. Evercore predicts that this could send the S&P 500 index down to 3,970 points, down 14% from its current level.

Therefore, investors still need to be wary of potential volatility and risks.

Written at the end

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