The average US unemployment rate remains at 4.0% in 2024

·         Fed may not cut more than 50 bps in 2025 as it needs to bring down core inflation by 100 bps in 2025-26, keeping the unemployment rate at least around 4.0%

Wall Street slid Friday on fading hopes of the next Fed rate cut in March’25 after hotter than expected US NFP/BLS job report. But Gold recovered from hawkish Fed panic low on fading hopes of an imminent Gaza war ceasefire before 20th Jan’25 Trump 2.0 inauguration day. Oil surged as Biden admin may impose stricter sanctions on Russian oil (including logistics/ships carrying to Indian and Chinese refiners)-

On Monday, Wall Street Futures recovered from Fed panic low amid short covering and value buying coupled with renewed hopes of an imminent Gaza war ceasefire; but Gold is still in a buoyant mood on last-minute suspense. On Tuesday, Wall Street Futures again got some boost on hopes of softer core CPI reading for Dec’24 after colder core PPI data; but techs were under pressure ahead of Trump's inauguration and high probable Trump tech war 2.0

On Friday (10th Jan’25), the focus of the market was on the NFP/BLS job report for Dec’24, which may help the Fed to make a firm decision about any rate cuts at the next FOMC meeting on 28th Jan’25. Fed will also consider the core CPI and PPI inflation report to be released this week (blackout period). Also, the Fed will consider overall average data for at least the past three/six months and the outlook thereof before any policy decision rather than only one/two months of economic data.

On Friday, the BLS household (HH) survey data indicated the nominal number of the US civilian non-institutional population (>16 years of age) increased by +175K to 269638K in Dec’24, while the labor force increased by +243K to 168547K. The labor force participation rate was 62.5% vs 62.6% sequentially and against the pre-COVID average participation rate of around 63.1%; while 2006 levels was around 66.4% (pre-GFC days). The US economy/labor market may have suffered more jolt during the 2008 GFC/Subprime crisis and lost both jobs and homes than during the 2020 COVID crisis.

The current 2024 labor force addition average was around +92K against the Non-Institutional Civilian population (working age above 16-yrs) growth of +134K, while the labor force participation rate at 62.6%, unchanged from the 2022 average, but lower than 63.1% pre-COVID longer term.

As per the BLS Household (HH) survey, after the latest annual revision, the U.S. economy added +478K employed persons in Dec’24, against the deduction of -273K sequentially (m/m) and the deduction of -762K yearly (y/y). The U.S. has 161661K employed persons in Dec’24. As per the BLS household survey, the average number of addition of employed persons for 2024 was +45K in Dec’24 against the 2023 average of +155K, the 2022 average of +263K, and the long-term pre-COVID average of +178K.

The US BLS HH survey includes non-farm payroll (NFP) employees (Private + Public/Govt) and self-employed persons (including professionals, contractors, and agri workers). As per Household survey data, the nominal number of unemployed persons decreased by -235K to 6886K in Dec’24 against 7121K sequentially (m/m) and 6315K yearly (y/y). In Dec’24, the U.S. unemployment rate edged down to 4.1% from 4.2 % sequentially (m/m), 3.8% yearly (y/y), and lower than the market expectations of 4.2%, but still substantially higher than the pre-COVID (Dec’19) levels of 3.6%.

The 2024 average unemployment rate was 4.0% and against the 2023 average rate of 3.6%; the current 3M rolling average of the unemployment rate was 4.2%, still below the Fed’s 4.5% red line. Fed’s minimum unemployment may be around 3.5% on a sustainable basis; i.e. 96.5% employment rate, which is now around 96.0% in 2024. Fed also regarded a 4.0% average as a sustainable longer-term unemployment rate; i.e. 96% employment rate as the maximum for the Goldilocks nature of the US economy against 2% minimum core inflation as price stability on an average.

Further fine prints of BLS H/H survey data indicate the US non-agricultural wage & salary workers' (NFP Payroll) employment (Private + Public) was around 150253LK.

Around 89.1% of the US labor force will be payroll employees in 2024 on an average against 89.6% in 2023.

Overall, non-agri self-employment was around 5.5% in 2024 on average against 5.4% in 2023.

The US agri employment was around 1.4% on average in 2024, unchanged from 2023.

The US part-time employment was around 16.6% in 2024 on average against 16.1% in 2023.

Multiple jobholders, higher unemployment rate, and frequent divergence between BLS EST Payroll and HH surveys: Often, the monthly addition of employed persons and employees has been diverging, leading to an edging up of the headline unemployment rate because of an increasing number of multiple job holders.

Fine details of the US NFP/BLS job report indicate the 2024 average non-agri/non-firm (NFP) payroll employees (PVT+GOVT) were around 158585K in the establishment survey against 149789K in the household survey. The average divergence/difference between these two surveys (BLS establishment and household) was around +8797K for 2024; If we deduct the number of NFP employees as per the BLS establishment survey and that of the household survey, we may have an idea of multiple job holders (employees under non-agri payroll), which is almost equivalent to this divergence. Overall, as per BLS seasonally adjusted data, now almost 4.4% of employed persons are multiple jobholders in 2024 against 3.6% in 2023, 3.3% in 2022, and 3.1% in 2021 (non-agri multiple job holders).

The increasing number of multiple job holders over the years may be explained by:

·         People may be taking additional full-time/part-time jobs (WFH) to meet the increasing cost of living (still 20% higher inflation than pre-COVID times)

·         Fear of sudden layoffs/salary cuts during any financial crisis (like COVID, 2007 GFC)

·         The flexibility of WFH, higher productivity for both employees and employers (part-time/freelancers may do the same work more efficiently at lower pay than regular full-time employees),

·         Sometimes lack of experienced workers for a specifically required skill; a flexible mix of WFH/WFO (remote/onsite) may be more positive for overall labor productivity and lower inflation

The increasing number of multiple job holders may be the reason behind a drop in the total number of employed persons despite an increase in headline NFP job/employee numbers in the last few months. The US BLS NFP/Establishment survey may count multiple jobs multiple times (if a person is doing two or more multiple payroll jobs at a time in WFH/remote mode or even physically in two/three shifts), while the BLS Household survey does count such multiple job holders as one employed person. The BLS Household survey includes payroll employees and self-employed persons such as professionals, gig workers/freelancers, contractors, and also agricultural workers.

In the Household survey, individuals are counted only once, even if they have more than one job (based on unverified answers across 60K household samples). In the establishment survey, employees working at more than one contractual payroll job are counted separately for each payroll. Thus often there are divergences between the number of employees and employed person additions in a month between these two BLS surveys (Establishment and Household).

Bottom line:

In 2024, the US unemployment rate was around 4.0% and core CPI inflation was +3.4% on average. This is against the Fed’s core CPI inflation target of +2.3% and sustainable unemployment levels around 4.0%. Thus Fed may now give priority to bringing down core CPI inflation further by almost 1% in 2025-26 by dialing back restrictive rate slowly than in 2024. Fed may not cut more than 50 bps in 2025. Also, the Fed needs time to analyze Trump’s actual policies on immigration/deportations and tariffs. But Trump may not be less hawkish than expected on tariffs, especially on China due to the growing influence of Musk.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42200) now has to sustain over 41800-41600 for any recovery and rally to 43000/43350-43800/45500 in the coming days; otherwise sustaining below 41600, DJ-30 may further fall to 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (20990) has to sustain over 20700-21000 for recovery and rally to 21500/21900-22250/222500 and further 22700-23000/23300 in the coming days; otherwise, sustaining below 20700, NQ-100 may further fall to 20500/20300-20100/19250 in the coming days.

Technically, SPX-500 (CMP: 5865), now has to sustain over 5950 for any further recovery/rally to 6025/6050-6150/6200 and 6350/6500 in the coming days; otherwise, sustaining below 5925-5900, SPX-500 may further fall to 5800-5775 and 5700/5600-5475 in the coming days.

Also, technically Gold (CMP: 2690) has to sustain over 2705 for a further rally to 2725 and further 2735/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2700-2685 may again fall to 2655/2620-2605/2600 and 2595/2575-2535/2435 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.