In January, non farm payroll and hourly wage growth in the United States exceeded expectations, and the expectation of interest rate cuts was further lowered. On February 2nd local time, the US Bureau of Labor released stronger than expected employment data for January, mainly reflected in the addition of 353000 new non-farm jobs in January, almost twice market expectations, and an average hourly wage of 0.6%, returning to the high point in March 2022. After the data was released, the 10Y US bond interest rate and the US dollar index rose to 4.0% and 104.0 respectively, further lowering the market's expectation of the Federal Reserve's interest rate cut in May. The education and health industry remains the main force for new employment, but professional commercial services, retail, transportation and warehousing, and manufacturing have all increased significantly compared to December. The unexpected increase in non-agricultural employment this time mainly comes from the service industry. Firstly, the main source of new employment still comes from the education and health industry, with 112000 new jobs added, an increase of 28000 people compared to December. The most significant increase compared to December (39000 people) is in the professional commercial service industry, with 74000 new jobs added in January. In addition, the trade, transportation, warehousing, and manufacturing industries both increased compared to December, with the latter adding 23000 jobs in January. With the recovery of the manufacturing PMI, it is expected that employment in the US manufacturing industry will continue to improve. In January, the unemployment rate and labor participation rate in the United States remained stable at 3.7% and 62.5%, respectively. However, the average hourly wage growth rate significantly increased, with a month on month increase of 0.6% and a year-on-year increase of 4.5%. The combination of non farm employment exceeding expectations and strong wage growth is likely to point to the still significant inflationary pressure on services in the United States, with strong consumption momentum.
But behind the strong non-agricultural sector lies vulnerability, which is worth paying attention to. 1) Although there has been a significant increase in employment in professional business services compared to December, it is mainly due to the contribution of temporary employment assistance, and the sustainability is not strong. The employment in professional business services increased by 39000 people in January compared to December, which is the largest increase among all industries, but 21000 of them came from temporary help services. 2) The strong growth rate of hourly wages may be affected by a decrease in average working hours. Although the month on month average salary growth rate in January was as high as 0.6%, it should also be noted that this may have been passively affected by a decrease in average weekly working hours. The average weekly working hours in the United States dropped significantly to 34.1 hours in January, almost close to the level during the economic recession caused by the pandemic in 2020, which may indicate that the sustainability of the strong US job market is weak.
The ISM manufacturing PMI in the US rebounded significantly in January, and the US manufacturing industry may enter an upward cycle in 2024. The US job market mainly reflects the income consumption cycle of US residents. In 2024, under the influence of excessive savings consumption and weakened individual income tax incentives, the overall trend of employment/service industry is bound to cool down. However, the January ISM manufacturing PMI released on February 1st this week exceeded market expectations, increasing by 2 to 49.1 compared to December, mainly driven by the improvement of the new order index (increased by 5.5 to 52.5 compared to December). This indicates that the US manufacturing industry may enter a new upward cycle in 2024, reflected in comprehensive improvements in manufacturing orders, employment, inventory, and buffering the cooling trend of the US economy, driving the recovery of exports from emerging countries worldwide. In 2024, the US may even show a decline in service industry PMI. The rare situation of a rebound in manufacturing PMI. Why may the US manufacturing PMI rebound in 2024? This mainly comes from two aspects: 1) the amplification of the gap in the early stage (new orders - own inventory), and the significant improvement in January's new order index will be transmitted to production, employment, inventory and other indexes month by month, further driving the overall upward trend of manufacturing PMI, while pointing to the recovery of new durable goods orders in the United States, which may be sustainable. 2) The relaxation of the financial environment in the United States has led to the end of the Federal Reserve's interest rate hike process since mid-2023, which has improved domestic financial conditions in the United States. This has a significant boosting effect on confidence indices such as the US manufacturing PMI.
Developed economy tracking: Job vacancies rebounded in the United States in December; Emerging market tracking: Brazil's central bank lowers interest rates by 50BP; Global Macro Calendar: Focus on Eurozone Retail Sales Data.
Risk warning: The Federal Reserve's tightening efforts have exceeded expectations.