How market should react to these data?
Before we go and review the market expectations from February NFP numbers, we have first to look at the published ADP and Initial Jobless claims numbers on Wednesday and Thursday.
Wednesday, the US Nonfarm Private Small Payroll Employment increased by 475,000 in February, exceeding market expectations for an increase of 388,000. The report showed employment gains in all major industries, including trade/transportation/utilities up 98,000, professional/business services up 72,000, manufacturing up 30,000, construction up 26,000, and finance with service sector increased by 11,000. Overall, the data results reflect that the employment market is still growing steadily, which supports the market's optimistic expectations for Friday's non-farm payrolls.
Despite strong hiring activity, the U.S. labor market is likely to remain constrained by reduced supply. This argument can be verified from the Beige Book issued by the Federal Reserve. The U.S. labor market grew at a "modest to moderate" pace, the central bank's survey report said, however "broadly strong demand for workers remains hampered by an equally widespread worker shortage." The report also shows that rising costs will also increase the ability of companies to continue to pass prices on to consumers, "expecting further price increases in the coming months."
And Thursday, lowering Jobless claims numbers, increased the expectations. According to the US Department of Labor published data, in the week ended February 26, total applications for the US state unemployment insurance at 215,000, decreased by 18,000 from the last week and market estimates of 225,000 applications. Also, the continuing claims for state unemployment benefits, which publishing with a week delay comparing initial claims, with little change seen at 1.48 million for the week ended Feb. 19.
On the NFP data front, the January increase of 467K, was a real surprise, while the market was expecting much fewer numbers, as COVID case counts peaked around the survey week for the employment data.
January data was another reason for the analysts to increase their expectations for a 50bp rate hike in the March meeting, while at that time, no one had any images from the current war in Ukraine.
However, now we have plenty of news around the globe that increases the uncertainty, especially the ongoing war between Russia and Ukraine. This conflicts with increasing Oil prices, holding and even lifting the inflation to the new high rate. And now, with employment recovery continuing fine, and increasing economic data, will be room for doubt, and the effect of Friday's numbers.
At the same time, we know that FED chair, Mr. Powell in his testimony already played down the possibility of a 50bp rate hike in the next meeting, and now, we have hot headlines from the war and any changes in military and political positions of both sides involved in the war, can be more effective than any other news. Increasing market risk and tensions will decrease the effect of positive data, and lift the missing expectations' effect, and vice-versa.
