Today we will look at the US economy from a macro perspective, because two data will be released tonight, one is non-agricultural employment, and the other is the US unemployment rate. The release of these two data will directly affect the trend of US stocks. As we have explained in previous episodes, the recent performance of BTC basically follows the US stock market, so we must pay attention to it. (Market analysis - Bitcoin trend US stock marketization & halving market failure? There is not much time left for the hoarders, the US stock market is about to reach a new high, and the currency circle will take off)
1. Non-farm payrolls
The first table below shows the number of non-agricultural employment. If the published value is greater than expected, BTC will fall, otherwise it will rise. However, we can actually look at the performance of the previous three months. In August, the published value was less than expected, so it fell; in July, the published value was greater than expected, and it still fell; in June, the published value was much greater than expected, and it still fell. Does this indicator not work? According to the literal meaning, if the published value is greater than expected, it means that the number of employed people has increased, which means that the economic situation is good.
Let’s first look at what this indicator means;
The U.S. nonfarm payrolls (Nonfarm data for short) is one of the important indicators to measure the health of the U.S. economy. It is released monthly by the U.S. Bureau of Labor Statistics (BLS) and reflects the number of new jobs in various industries except agriculture. Nonfarm data is usually released on the first Friday of each month.
Non-farm employment data includes the following aspects:
New jobs: reflects how many non-agricultural jobs were added last month, reflecting the growth or recession of the economy.
Unemployment rate: reflects how many people are looking for jobs but have not found them. It is an important indicator to measure the tightness of the labor market.
Average Hourly Wage: Shows changes in the average wage level of workers, reflecting inflationary pressure and consumption capacity.
Labor force participation rate: reflects how much labor force participates in economic activities.
Non-agricultural employment data is mainly obtained through two survey methods:
Establishment Survey: BLS sends questionnaires to about 690,000 workplaces in about 145,000 businesses and government agencies, and counts the employment numbers reported by these employers. This is the main source of non-farm payrolls data.
Household Survey: At the same time, BLS conducts a sample survey of about 60,000 households to understand individual employment status (such as whether they have a job, are looking for a job, are unemployed, etc.). Although this part of the data is not directly used for non-agricultural employment statistics, it helps to measure the unemployment rate.
Judging from the literal explanation above, the increase in non-farm payrolls should represent a strong economy and a stable labor market, but this is just one indicator. Let's look at the other corresponding indicator in the overall analysis.
2. Unemployment rate
The figure below is a chart of the unemployment rate. You can see that if the announced value is greater than the expected value, BTC will rise, and if it is lower than the expected value, it will fall. In the data of the previous three months, we can see that the announced values from June to August were greater than the expected values, and they all fell. This is easier to understand. The rise in the unemployment rate means that the economy is not good, so it falls.
The U.S. unemployment rate is an important indicator of the health of the labor market and is released monthly by the U.S. Bureau of Labor Statistics (BLS). The unemployment rate indicates how many people in the labor force are looking for work but have not found it, and is usually expressed as a percentage.
Calculation method of unemployment rate:
Unemployment rate = (unemployed population ÷ labor force population) × 100%
- Unemployed: refers to people who are unemployed but actively looking for work.
- Labor force: includes people who are working and those who are unemployed but looking for a job, but excludes students, retirees, chronically ill people and other people who do not participate in the labor market.
Economic impact of unemployment rate:
1. Reflect economic conditions: A lower unemployment rate generally indicates a healthy economy with strong labor demand, while a higher unemployment rate indicates that the economy may be in recession and companies are reducing hiring.
2. Impact on monetary policy: The Federal Reserve and other central banks will closely monitor the unemployment rate to adjust monetary policy. An unemployment rate that is too high may prompt the Federal Reserve to adopt loose policies (such as interest rate cuts) to stimulate economic growth; an unemployment rate that is too low may trigger inflationary pressure, prompting the Federal Reserve to tighten its policies.
3. Market sentiment: The unemployment rate has a direct impact on financial markets. Low unemployment rates usually drive stock market gains because they indicate a strong economy. High unemployment rates can cause market concerns, leading to volatility in the stock and currency markets.
Limitations of unemployment rate:
Although the unemployment rate is an important economic indicator, it has some limitations:
1. Not reflecting labor force participation: The unemployment rate does not include people who have given up looking for work (the “discouraged unemployed”). When many people leave the labor force, the unemployment rate may look low, but it does not mean the economy is doing well.
2. Not reflecting wage growth and job quality: Even with low unemployment, slow wage growth or low-quality job opportunities could inhibit a full economic recovery.
3. Lag: The unemployment rate is a lagging indicator and usually reflects past economic conditions rather than the current economy or future trends.
In summary, after understanding the above two indicators, after the Fed releases the data at 8 o'clock, friends can actually roughly judge the current economic situation. If the non-agricultural employment data is lower than expected and the unemployment rate is higher than expected, it means that the economic situation is not good and there is a high probability of going short. On the contrary, if the non-agricultural employment data is higher than expected and the unemployment rate is lower than expected, there may be a wave of increases. However, this is only one indicator, and there are many factors that affect the economy.
Then we look at another important dimension, which is the interest rate cut that the Federal Reserve will make in September. In fact, this round of interest rate cuts is basically certain, because at the annual Jackson Hole Global Central Bank Annual Meeting from August 22 to 24, Eastern Time, Powell’s speech actually summarized the following points:
1. The time for policy adjustment has come;
2. The direction of inflation is clear;
3. We do not want or welcome a further cooling of the labor market.
Therefore, it is basically certain that the United States has controlled inflation, and it is time to start lowering interest rates to stimulate the economy, because raising interest rates will reduce the liquidity in the market, the economy is weak, and the labor market data is not very good. The labor market data are the two major data we mentioned above (non-farm employment and unemployment rate).
Now if inflation is no longer a problem, the strength of the U.S. stock market will be determined by the direct impact of the economy, so we need to focus on how the U.S. economy will perform in the future. Many people will say that the U.S. economy is not doing well, but if you look at U.S. stocks, both the S&P 500 and the Nasdaq are hitting new highs. Logically, if you say the economy is not doing well, why are stock market data still hitting new highs?
Let’s look at another data. This is the revenue growth of S&P 500 companies in Q2. You can see that most industries are increasing, except for the last one, materials.
Regarding labor data, a Goldman Sachs report pointed out that the current labor supply and demand relationship is more balanced. Now, the proportion of companies discussing labor shortages has fallen back to pre-epidemic levels, and the proportion of companies discussing layoffs in the second quarter remained low.
The third data is that the retail data in the United States is growing. Although it is not as high as before the epidemic, it is at least on the rise.
In summary, today we have learned a lot about indicators and macro-environmental impacts, but indicators are only indicators after all, they are only for guidance and cannot be copied blindly. Although the Federal Reserve will release data at 8 o’clock tonight, it will still revise the data later, so the data also has a certain lag. We still need to look at the data rationally and adhere to long-termism!
