The Skilling NFP Preview - August 2022

US to avoid a recession? Is there some kind of crisis we should know about?

Last week the US Fed chairman Jerome Powell said that the US jobs market at 3.6% is “extremely tight” suggesting that the US economy can handle higher interest rates and at the same time avoid a recession. Meanwhile, the financial media keeps on dropping the “R” word - “Recession”. Leaving many investors on one hand with a FED that’s confident the economy can handle the inflationary pressures, while on the other hand, a media narrative suggesting doom and gloom.

Take a look at the below chart and then let’s take a step back in time and revisit the 2008 financial crisis. Soon after the near collapse of the global financial system in 2008, US unemployment jumped to 10% and, although gross domestic product (GDP) slowed, it eventually got back on track and unemployment began its move lower as more jobs were created and more people returned to work.

At the same time, the US stock market recovered (2008 - 2019) and hit multiple new all time highs until the 2019 COVID-19 global crisis hit. Again, there was a sharp spike in unemployment, and GDP slowed, while stock market prices fell. Then the economy adapted, GDP accelerated, news jobs were created, and unemployment fell towards 40 year lows to the current rate of 3.6%.

It is now August 2022: what’s the current crisis? Is there even any crisis at all? Perhaps there is a commodity shock hitting consumer prices, but central banks are working on sorting that one out.

Recession or not, investors may find comfort in looking back at historical market events to learn and understand that even in dark days, where fear of the unknown drove markets to panic and sell-off, the powerful forces of supply and demand eventually expose market overreactions, corrections and opportunities.

Bottom line: in looking back into the financial history of markets, the fact is that crises have come and gone and people and markets move on. This is why it's important to be rational and to study the key pieces of economic data such as growth, income, inflation and the monthly US non-farm payrolls jobs report, and ensure to create your investment and trading plan on data - not emotions.

---

The July Non-Farm Payrolls (NFP) is due on Friday August 5th, 2022

Will US unemployment remain at 3.6%?

Can weaker demand for jobs off-set inflation concerns?

The strong 12-month jobs market has added to the consumer price inflationary pressures.

In the situation that Friday’s NFP indicates a slowing US jobs market, it could help build a case for the FED to hold back on continuing with the aggressive approach towards future rate decisions. However, if the NFP report offers any upside surprise, this could spook investors to take a more defensive approach and trigger the stock markets to give back some of the previous week's gains, on fears that the FED will keep the ‘pedal to the metal’ with the aggressive rate policy.

Watch the Monthly US NON-FARM PAYROLLS data for clues if investors will be willing to support the recent stock market rally or not.

The latest NFP is forecasted for a drop from 372,000 jobs created during June to 290,000 new jobs created during July.

• If the actual is above the forecast this could be seen as a net positive signal that the US economy is strong and creating more jobs, but it could drive the US FED to remain on an aggressive rate hike path which stock market investors may signal as a bearish for their investment portfolios.
• If the actual is below forecast this may indicate that the US employment market is slowing down because less jobs have been created than expected, thereby increasing the speculators to bet on a less aggressive FED which may lead to the potential for buyers to jump back into stock markets.