Non-farm employment in January exceeded expectations, and the U.S. economy is confirmed to be "not landing"

The exaggerated non-farm payrolls data in January will not make Powell and Yellen happy. Not only has the U.S. economy not made a soft landing, inflation may even take off again. Not only is it absolutely impossible to cut interest rates in March, but there is also no possibility of an interest rate cut in May. So big, some people are even worried about the resurgence of inflation.

The U.S. non-farm payrolls announced on February 2nd increased by 353,000 in January, which was twice the consensus estimate of 185,000 and higher than all analysts’ expectations. The number of employed people in December also increased from 216,000 previously. It was revised up to 333,000.

After the release of this much-than-expected data, the U.S. stock market rose again after slight fluctuations. The Dow Jones Industrial Index rose 0.35%, the Nasdaq Index rose 1.74%, the U.S. dollar rose sharply, and the U.S. two-year Treasury bond yield rose by about 16 basis points. reported 4.395%; the U.S. ten-year Treasury bond yield rose about 10 basis points to 4.006%. Spot gold's decline expanded to more than 1%, at $2,032.72 per ounce.

The market is worried about inflation. If the expansion of employment shows that the internal power of the economy is strong and more people are receiving salaries, then the increase in employees' salaries is the basis for inflation. Data shows that the average hourly wage in the United States in January The year-on-year growth rate reached 4.5%, the highest since March 2022, which was higher than the expected 4.1%. The wage growth rate in December was revised up from 4.1% to 4.3%, and the month-on-month growth rate reached 0.6%, which was 0.3% expected. double.

Wage growth is difficult to slow down, which is not good news for the Fed and means that inflation may be difficult to cool down. If this trend continues, then the soft landing so called by U.S. Treasury Secretary Yellen will not exist at all, and in the future, in order to curb inflation again, the monetary policy that has been turned will have to turn around again, then the situation will be difficult to predict.

The Federal Reserve started raising interest rates in March 2022. So far, the U.S. policy interest rate has been raised by 525 basis points, reaching 5.25%-5.5%. The U.S. mortgage loan interest rate exceeds 7%. Under such high interest rates, it is difficult to let such a situation happen. People believe in employment, we can only say that January’s non-agricultural data breaks the logic and common sense of the economic cycle.

The Fed suddenly and unexpectedly started discussing interest rate cuts at last December's interest rate meeting, which was a shocking reversal. At the January interest rate meeting, it chose to stay put but strongly rejected the possibility of an interest rate cut in March. The Fed may have sensed the dangers in the job market. It has an unusual taste, but no one in the market would have imagined such data.

The Fed responded quickly. After the data was released, Fed Governor Bowman said it was too early to consider cutting interest rates. The Fed remains willing to raise interest rates if progress against high inflation stalls. Easing financial conditions poses the risk of fueling inflation. There are still risks of rising inflation in the United States, and the Fed still needs to remain vigilant. Nonfarm payrolls data suggest that labor market rebalancing has stalled.

Regarding the stubbornness of this round of U.S. inflation and booming employment, the general market view is that after the outbreak of the COVID-19 epidemic, U.S. fiscal and monetary policies have experienced unprecedented easing. The unlimited monetary easing has caused the income of the employed labor force to rise significantly, and Groups who have withdrawn from the labor market have experienced a wealth effect amid rising housing prices and a continued bull market in the capital market, which has stimulated and supported demand. At the same time, due to the economic recovery, the supply of labor is insufficient. In order to prevent the situation of not being able to find labor force again during the epidemic, companies must reserve some labor force even if the labor force is already surplus, and reduce layoffs to ensure the employment of workers. In addition, the U.S. financial cycle is still in an upward phase, which also supports economic demand.

This explanation may only be superficial, because it still does not explain the strong demand under such high interest rates. The author believes that we should look for it from the depth of the industrial development of the U.S. economy. For example, the industrial revolution centered on artificial intelligence may be underway. This may be a starting point for thinking about reshaping the internal logic of U.S. economic development.

Inflation in the United States is recurring again. If the Federal Reserve starts to raise interest rates again, a scenario like the 1970s may occur, and the results will be catastrophic.