Concerns that COVID-19, which was originated in Wuhan, China and spread rapidly across continents, would significantly slow global economic activity and prompt the monetary policies, particularly the central banks of developed countries. This wave of interest rate cuts started by the central banks of developed countries also created expectations that the virus would pose a downward risk to the global economic outlook, in other words, the effects of the epidemic would do significant damage to the global economic outlook. While this was the case, markets focused on non-farm payrolls, which is the indicator of the economic outlook in the US, the world’s largest economy.[1]

Fed’s emergency interest rate cut on the grounds that coronavirus poses emerging risks to the US economy brought concerns to the market that there may be some cracks in the labor market, which is experiencing the lowest unemployment rate in 50 years.

To talk about the non-farm payrolls in the United States, it is necessary to mention the unemployment rate, which is as important as the non-farm payrolls. US President Donald Trump and Fed Chair Jerome Powell often state that the employment market is strong and unemployment is at a nearly 50-year low. Hence, the importance of unemployment data is still on the agenda. In this context, we can say very clearly that the unemployment rate, which we will examine first, has retreated moderately at the one-year outlook. The data had been announced as 3.5 percent, almost the lowest level in 50 years, in December.

[1] Non-farm Payrolls: The change in the number of people working in sectors other than the agriculture sector.

In January, it slightly increased and reached 3.6 percent. We believe that a decline below 3.5-percent-unemployment-rate is difficult, because it will indicate a frictional unemployment[1]. Additionally, we do not think that it will come down further in February data, due to the effects of coronavirus on global trade. However, the assumption that the U.S. economy has a fairly strong labor market would not be right to expect a marked rise despite coronavirus effects. In this context, it is possible to say that the market expectation of 3.6 percent can be maintained. On the other hand, the weekly change in initial jobless claims in the United States did not increase significantly compared to the last month, and the data also support our opinion.

Private Sector Employment Exceeded the Expectations

According to the National Employment Report published 2 days ago by the ADP Research Institute and Moody’s Analytics in a joint effort, private sector payrolls in the United States in February increased by 183k, exceeding market expectations of 170k.

* Table above shows the data before new release in March.

In the National Employment Report, which is a preliminary indicator of the change in non-farm payrolls data, prepared based on payroll data of about 400,000 American employees, private sector employment recorded a 183k increase in February, following an increase of 291k, the highest level in almost 5 years, in January. Hence, it is possible to say that US labor market growth continues, yet it slightly lost the momentum.

[1] Frictional unemployment: A type of unemployment caused by the mobility of seasonal or permanent workers in the labor market.

When we examine non-farm payrolls (NFP) on the basis of the one-year chart, together with the ADP data, it is seen that as ADP data increases, NFP data also moves upwards. In addition, when ADP retreats after each peak level on micro-scale, it is evident that NFP data also follows it. In this context, the expectation that the NFP could be below 225k in February is technically supportable.

The manufacturing and service gains are among the locomotive sectors of the economy in the USA. The data published by the Institute for Supply Management (ISM) showed that the Manufacturing PMI indicator, which had increased to 50.9 level after 4 months in January, signaling the growth in the sector again, was recorded as 50.1 and showed that the growth increased, yet lost its momentum. In contrast, ISM Non-Manufacturing PMI indicator rose to 57.3 in February, indicating that growth in the service sector had gained momentum.

The data set will be published by Bureau of Labor Statistics today at 14:30 (GMT+1). When we analyze aforementioned macroeconomic variables and economic uncertainties, we can say that the growth in the leading sectors continue and employment gains relatively strength and that potential for growth is well preserved despite the slowdown in private sector unemployment. We will also observe coronavirus effects on the data. Hence, we expect it to converge to 175k, with a decline by 50k from 225k. If non-farm payrolls exceed 175k, which is our expectation, the risk appetite and global stocks might be triggered. If the data is below the expected value, the consumer confidence, which is already low, will be damaged and then, the demand for safe-haven assets will increase.


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