For the American people, 2023 is bound to be an unstable year: on one hand, people need to deal with the rising borrowing costs brought by the Federal Reserve's rapid interest rate hikes; on the other hand, they must always be concerned about their "jobs" and be wary of the risk of layoffs.

Some may ask, why do layoffs occur? How important are employment data? Perhaps after watching this session, you will have the answer!

● Why is the labor market so important? What are the Indicators?

● How can investors observe and establish an analysis framework?

● What impact does employment have on Stocks?

● Then let's get practical!

● Summary

Is analyzing the labor market important? — The answer is, very important!

The reason is simple: employment provides production efficiency and services, which will affect all aspects of our lives.

For example, if workers go on strike, the city will come to a standstill; if farmers stop farming, the price of vegetables in supermarkets will soar...

Moreover, the Indicators of the labor market also influence investments in U.S. stocks; by studying these Indicators, it is possible to predict the next steps that the Federal Reserve may take, thus helping us to increase or decrease our Stocks positions.

Understanding the overall picture of the labor market requires multi-faceted consideration, here are the 7 key Indicators that the Federal Reserve closely monitors:

Labor participation situation

(1) Unemployment rate

(2) Labor participation rate

Labor fluctuation situation

(3) New non-farm employment

(4) Initial unemployment claims

Employment environment and compensation

(5) Number of job vacancies

(6) Number of employments

(7) Weekly wage growth rate

Non-farm vs. ADP non-farm

Many investors find that when analyzing labor market data, there are two indicators for 'non-farm employment.' What are the differences between the two, and which data is more meaningful?

● Differences in coverage: Non-farm payroll is a survey conducted by the Department of Labor targeting U.S. businesses and government agencies, while ADP non-farm payroll is a survey conducted by the ADP Research Institute exclusively targeting businesses (excluding government).

● Differences in release time: Non-farm payroll is released on the first Friday of each month, while ADP non-farm payroll is announced two days prior to the non-farm payroll. ADP non-farm payroll allows the market to form certain expectations about the non-farm payroll in advance, and thus is referred to by market traders as "little non-farm payroll".

● Difference in trends: From a long-term perspective, non-farm payroll and ADP non-farm payroll show consistent trends, but in the short term, they often diverge; the more turbulent the labor market period, the more likely there are discrepancies between the two survey results.

● Conclusion: Market participants and Federal Reserve officials pay more attention to non-farm employment data, so non-farm data is considered more authoritative and important.

Timely tracking of economic indicators:

Open the Futubull APP, Market → U.S. Stocks → Economic Calendar/Selected Macroeconomic Data, get a head start on financial events, and discover investment opportunities early!

How can investors observe and establish an analysis framework?

A key factor in understanding the labor market comprehensively is the release time of the indicators.

Why is it necessary to understand time? The answer lies in two familiar words: expectation!

The market often experiences fluctuations before and after the release of key Indicators, so when you realize that a particular Indicator is about to be released, you can position yourself based on market expectations.

The following are detailed definitions of the 7 key Indicators that the Federal Reserve is most concerned with.

Once the release time is known, formal analysis can begin.

We follow the following steps:

First, determine the position of the U.S. economic cycle and grasp the execution direction of the Federal Reserve's monetary policy.

It is believed that most students understand that the two core objectives of the Federal Reserve are: price stability and full employment. Based on the current economic situation, the Federal Reserve usually takes measures such as adjusting interest rates, monitoring macroeconomic Indicators, and implementing quantitative easing policies to balance the goals of price and employment.

Secondly, as an investor, you may have already realized that the COVID-19 pandemic has also changed the structure of the labor market. After the pandemic, many people "traded" their bosses in search of higher wages, even if it meant temporarily not finding another job, they could rely on subsidies to maintain their living for a period.

"U.S. News & World Report" magazine stated, 'During the pandemic, many workplace rules were disrupted, some are permanent.' By the end of 2022, if every unemployed person could find a job, there were still about 4 million vacant positions in the United States, making employment extremely 'hot.' However, analyzing the reasons behind this 'employment heat,' it is actually millions of experienced employees choosing early retirement.

Therefore, after understanding the causes of the current labor market, we need to slightly change the analysis logic.

In the past, we could perform comparative analysis of similar types of Indicators, for example, a significant decrease in the number of vacant positions would be accompanied by layoffs and an increase in the unemployment rate, thus when this situation occurred, economists could determine that the U.S. economy would experience a 'hard landing.'

However, this method may no longer be applicable, because starting in 2023, although the number of job vacancies has significantly decreased, the unemployment rate remains low.

Analyzing the market now may need to 'ignore history;' we can use trend analysis, focusing more on the month-on-month changes in data.

At the same time, comprehensively determine the relationship between the labor market and other macro Indicators, such as wage growth and inflation; with high inflation, wage growth surely won't slow down.

Finally, it is necessary to consider the employment expectations given by the market since the stock market often changes with expectations.

The previous text actually laid the groundwork for the intricate relationship between employment Indicators and Stocks; now let's organize it in detail again.

Analyzing the relationship between employment and the stock market is not simply a positive or negative correlation; it is essential to first clarify the background of the U.S. macroeconomic cycle.

For example, during normal times, strong employment growth and rising wages are considered good news, but during the period of the Federal Reserve's interest rate hikes to control inflation, a strong labor market can lead to significant market declines.

Why? Because the market believes that strong employment will lead to more aggressive interest rate hikes, which is unfavorable for the stock market; the market reacted this way right after the announcement of the September non-farm employment data in early October 2022.

In contrast, when Wall Street anticipates that the U.S. economy is about to enter a recession, employment and the stock market are often positively correlated.

In early June 2023, after the announcement of May non-farm employment, the market adhered to this pattern; one reason for the rise in the U.S. stock market that day was "confidence brought by a strong labor market," as the data alleviated concerns about a recession, leading investors to believe that the U.S. economy remains strong and growth momentum still exists.

If employment data from January 2023 is available, how should it be analyzed?

1. First, identify the position of the U.S. economy: January 2023 is still within the interest rate hike cycle that began in 2022.

2. Secondly, analyze the Federal Reserve's attitude: Powell's stance is to "cool down the labor market to help curb inflation." This means that if a cooling in the labor market is observed, it is highly likely that the Federal Reserve will stop raising interest rates, leading to a rise in the U.S. stock market on the day of the announcement.

3. Finally, do the actual data align with the direction of the Federal Reserve? In fact, January's employment data was very strong, significantly exceeding market expectations, indicating that the Federal Reserve will not stop raising interest rates; therefore, the market fell after the report was released.

Summary

Returning to the question of "labor market analysis", everyone can think according to the following steps:

If you feel that you have learned to analyze the labor market from this course, you might want to follow our macro interpretation's "advanced" section to predict market trends based on the latest data!