NFP Preview: Jobs To Make the Case for No Rate Cuts?

In the wake of the recent FOMC decision, the impact of the upcoming NFP figures might be highly contextualized. That means that what has increasingly become unpredictable data results could have an unexpected impact on the market. Which means there could be even more focus on the figures this time around.

One of the issues facing analysts trying to predict where the Fed will go with interest rates this year is that there has been a series of contradicting data on the inflation front. And those mixed signals are also replicated in the labor markets. The key issue is whether ongoing “tightness” in the market will keep up inflationary pressures, because with the unemployment rate below structural level, the Fed isn’t too worried about the second part of its mandate.

The Market is Constantly Being Surprised

It seems that it’s now become a feature of NFP releases that they don’t match with predictions. Part of that is that there is a consistent difference between two ways of measuring data. One is the privately conducted household survey, and the other is the vaunted payrolls review by the Bureau of Labor Statistics. Technically, they should measure the same thing, but they are ending up with different results.

The NFP is a survey of companies and whether or not they have increased the amount of people who are hired. The household survey asks how many people in a household hold a job. If companies are hiring more people, then more people should be working. But, according to the household survey, while there are constantly more jobs being created, the number of people who actually get jobs isn’t increasing as fast.

Explaining the Peculiar Jobs Situation

One obvious explanation for the discrepancy is that more people are taking on second jobs. That would be because the higher cost of living forces people to take on gig work or part-time work, both of which are counted as “jobs” as far as NFP is concerned. But surveys suggest that the proportion of people working more than one job has remained fairly steady.

Another, more controversial, explanation is that the jobs are being taken up by people who aren’t on the surveys. The UK was recently forced to change its labor survey methodology due to lack of responses, and there have been similar criticisms of the US data as well. That could mean there is economic/labor activity that is not being captured by the NFP survey, which is notorious for missing gig workers. The other probability is that the household surveys don’t consider people that don’t form part of a regular household, such as migrant workers who could be counted by NFP but not by the private survey.

What Does it Mean for the Markets?

The upshot of these discrepancies is that the data is harder to predict, making the reaction in the market more pronounced. As for inflation and what it means for future Fed action, the NFP is still the most important, because regardless of whether a job is a first or second source of income, it’s still income that can add to demand and inflationary pressure.

US April NFP are expected to once again be lower than the prior month at 238K compared to 303K last time. But, as is usual, the surprise beat from March might be revised lower. The unemployment rate is expected to remain unchanged at 3.8%. As is the average hourly earnings at 4.1%.

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