Non-Farm Payrolls: jobs growth slows, but stocks are in recovery mode

The US economy created 151k jobs last month, which is lower than the 160k expected by economists. This was higher than the downwardly revised figure for January of 125k. The unemployment rate ticked a notch higher to 4.1%. Unsurprisingly, the biggest drag to employment was the Federal Government, where jobs declined, while jobs growth ticked higher in healthcare, financial services, transportation, and warehousing.

The recent loss of momentum for US jobs growth, means that the 12-month average for the NFP is now 168,000. February’s number is very close to the average figure, which suggests that the US labour market remains solid. The decline in Federal jobs was only 10,000 workers in February. Elon Musk’s DOGE was only just getting started then and  they have continued to slash Federal workers this month. Interestingly, in terms of government jobs, Federal workers are smaller in number than local and state jobs, and state level jobs rose last month. Since DOGE cannot impact state level jobs, its impact on the labour market could be small, especially since there are reports that the White House has asked DOGE to scale back some of their cost-cutting plans.

Although the overall unemployment rate was stable at 4.1%, there were some underlying signs of labour market weakness in today’s BLS report. The U6 measure of unemployment was notable. The U6 measure is the BLS’s broadest measure of unemployment, which includes those who are only marginally attached to the workforce and the underemployed - people who are working part time for economic reasons. This rate ticked higher to 8%, its highest level since October 2021.

The U6 rate has stolen the limelight from the headline NFP today, it has also impacted the market reaction to this data.

• The dollar remains weak, and the dollar index is close to the lows of the day.
• US stocks are mixed at the end of this week, capping off a tough week for global markets, especially US equities.
• The S&P 500 is clawing its way into positive territory, while the Nasdaq is in recovery mode. The Nasdaq 100 fell through its 200-day sma this week, which could be a sign that this index is oversold. The SPX is approaching its 200-day sma at 5732, which could be a sticky level for US stocks.
• The US’s biggest tech stocks have staged a recovery after a bruising week for the likes of Nvidia. Broadcom’s strong earnings data helped boost sentiment earlier on Friday. Although Nvidia is higher by 1.9% so far on Friday, the stock has a long way to go to recover the 6%+ losses that it has made this week, which brings Nvidia’s total loss to date at more than 18%.
• There has been a broad-based recovery in global bond markets on Friday. The sell off was sharp and steep, it had gone too far, so a recalibration of yields was to be expected.
• The oil price is higher today, and the Brent crude price has risen above $70 per barrel.
• The gold price is giving back earlier gains as we move into the US session.  However, it is still outpacing equities, and in the last 5 sessions it is higher by more than 2%. This suggests that gold is one of the rare harbors in the storm. The gold price was also boosted by news that China boosted its gold reserves last month, even if signs of a weaker US labour market is eroding the need for an inflation hedge.

Overall, this report was solid on the surface, but if you look under the hood, then weakness lurks. US stock markets are in recovery mode on Friday; however, we think this is more for technical reasons. The concerns about the US economy persist, and after today’s labour market report, there are growing fears about dark corners of the US economy.

Could Trump calm markets at the end of the week?

Policy uncertainty is a major driver of market sentiment right now. We shall have to see if US Treasury Secretary Scott Bessant’s interview where he said that Donald Trump does look at the stock market, can boost sentiment. So far, the S&P 500 is down a touch and the Nasdaq is following the bond market and the oil market higher at the end of this week. Trump has also said that he could threaten Russia with more banking sanctions if they do not agree a peace deal with Ukraine. This could ease some of the existential fears about the US moving away from Europe and towards Russia, which added to market jitters in the last week.

What this means for the Fed

The dollar may continue to struggle after this jobs report as it supports further rate cuts from the Federal Reserve. The Fed Fund Futures market is expecting 3 rate cuts from the Fed this year. There is now a 33% probability of three cuts this year, up from 12% a month ago, according to CME’s Fedwatch tool. This shift in US rate cut expectations is fueling dollar weakness, in particular.