"We have a higher than consensus forecast for non-farm employment in June, but more pessimistic about the prospects for medium-term economic growth." - July 5, 2022 09:39 am New York time.

Author: Jeffrey Young

"Our forecast for non-farm employment in June is higher than the consensus level, but it is more pessimistic about the prospects for medium-term economic growth."

- July 5, 2022 09:39 am New York time. What is the predicted value of the number of non-agricultural employment by

• DeepMacro (DeepMacro)? Is it higher or lower than the consensus level?
• "Big Data" thinks about the industry trends in June?
• Can show the change from consumer goods-related expenses to service-related expenses from recruitment data? Can
• put this in the context of the contribution of the labor economy to the overall economy?
• What does this mean for Feder ?

1. What is the predicted value of DeepMacro for the number of non-agricultural employment? Is it higher or lower than the consensus level? Is it pointing to stronger or weaker medium-term economic growth?

.345 million.
is above the consensus level of 275,000.
's medium-term growth is even weaker.

revenue data has two types of impact on the market. First of all, compared with consensus, is this data an upward or a downward accident? Second, in an absolute sense, is the data strong or weak? The first helps determine the market’s short-term response, from the first few data to one to two days after the report is released. The second helps determine the market's medium-term response. As the weight of relevant economic evidence accumulates, the portfolio will change, the valuation will change, and so on.

First of all, the prediction value of DeepMacro's non-farm employment (NFP, +345,000) is higher than the consensus level (as of 8:00 am on July 5, New York time, 275,000). We do not know the considerations of market consensus level prediction values, so it is not easy to see where the difference between the DeepMacro predicted value and the market consensus level. We speculate that the predicted values ​​of these consensus levels emphasize public opinion more than those of DeepMacro.

Look at the medium term again, the non-farm employment report will confirm the economic slowdown since the end of last year. Several considerations for the predicted value of non-farm employment in DeepMacro all show that there is a moderate slowdown compared with the data of 390,000 in May:

• In June, the growth of new recruits slowed down (see Figure 1a).
• In June, the growth of new jobs (a leading indicator of the labor market) also slowed down (see Figure 1a).
• In June, the catering industry with abundant employment opportunities may remain basically the same.
• In June, overall economic growth continued to lose momentum.

As we mentioned in Part 4 below, the labor market has begun to slow down, and reports consistent with our expectations will confirm this slowdown trend.

Figure 1a. New jobs and new jobs, January 1, 2020-June 28, 2022 (21-day moving average)

Source: DeepMacro and LinkUp/Smart Market Data.

Note: Orange = the survey period for May report; blue = the survey period for June report. Our primary source of employment data is the recruitment information on the human resources websites of approximately 30,000 U.S. companies. When a company publishes job ads on its website, we see it as a "new job." If an ad such as this is removed from the website, we will count it as a "job position". New jobs represent the company's demand for labor and can therefore become the main indicator of employment growth. We also found that the total number of new jobs, plus other variables, such as the DeepMacro "economic growth factor" that measures the strength of the overall economic cycle, can explain the number of non-agricultural jobs in the monthly period.

2. What does "big data" think about the industry trends in June?

is losing momentum.

We continue to pay close attention to the employment situation in the catering industry, because the employment in this industry is still a long way from the pre-epidemic level (751,000 jobs, about 6% of the pre-epidemic level).A big data source that can track official employment data of the catering industry is based on the OpenTable reservation system statistics. In June, the number of diners at restaurants is very close to May levels, and the May level itself is also very close to April levels (see Figure 2a). The employment growth of the catering industry in April and May was only 42,000 and 46,000, down about two-thirds from the average monthly growth rate in 2021. Therefore, we expect job growth in June to be smaller, consistent with this reduced level.

Figure 2a. United States: Diners in restaurants vs. Hotel/leisure industry employment, June 1, 2020 - June 27, 2022 (% change in the 28-day moving average compared to 2019, employment in thousands)

Source: DeepMacro and OpenTable.

3. Can the change from consumer goods-related expenditures to service-related expenditures can be seen from recruitment data?

cannot.

Another "bulking economy" argument is that spending (and economy) is still strong, but its composition is changing. From the large-scale consumption of goods during the epidemic to the current consumption of services.

We don't see any evidence about this in the labor data. Figure 3a shows a comparison of the number of new jobs added per day in consumer goods-related industries and consumer service-related industries. Since March, the number of new jobs in commodity-related industries has decreased. The growth of new jobs in service-related industries has been lower than the growth of new jobs in commodity-related industries, and is currently negative. This is consistent with the data from the catering industry in Figure 2a. There are some rumors that services spending is higher, but based on labor data, either this is not really happening, or these industries are becoming more efficient in using labor.

Figure 3a. United States: Number of new jobs in consumer goods-related industries vs. Number of new jobs in consumer services-related industries, January 1, 2022-June 28, 2022 (year-on-year for the total number of mobile 30 days)

Source: DeepMacro and LinkUp/Smart Market Data.

4. Can this be put into the background of the contribution of the labor economy to the overall economy?

Labor as the main pillar of the economy has begun to weaken.

When optimists talk about the U.S. economy, they invoke a strong labor market as one of the reasons for their optimism. Indeed, after entering the expansion cycle for so long, employment can still grow at a rate of 300,000 per month, which is very strong. In addition, wage growth has been healthy, and the labor participation rate has been rising.

until early spring, we all agree with this point of view. By the digital side, the labor economy is the best part of the economy until April. Figure 4a shows the contribution of various categories of economic activities to the overall economic growth factor. From January to April, the contribution of "income" (mainly labor) ranged from 1.36 to 1.45 (the standard deviation above the trend value), and the trend of income has been relatively stable compared to other categories such as output, public opinion and expenditure. But starting from May, the contribution of income began to decline. These categories are related to each other. After inventory backlogs, output will drop and market sentiment will weaken, which may weaken the urgent hiring demand that companies have been reporting throughout the spring.

Figure 4a. US economic growth factor, contribution of various variables, January 2022-June 2022 (ten-year mean standard deviation)

Source: DeepMacro (DeepMacro)

5. What does this mean for the Fed?

hike rate 75 basis points in July, and it is too early to consider stopping rate hikes.

Figure 5a shows the prediction value of the DeepMacro short-term interest rate model STR-1 for the US two-year swap rate. There are four key points: the prediction value of

• interest rate and the short-term interest rate model STR-1 have both declined. The predicted value of the short-term interest rate model STR-1 is still much higher than the market forward interest rate.Considerations related to inflation in the
• model: the Fed's preference for inflation (33 out of 100 models chose it as an important driver of interest rates), and the change in the inflation factor of the DeepMacro (31 model choices) are the two main drivers of interest rates.
• The importance of the Fed's speech has risen in recent weeks; as the Fed finally focuses on inflation, the market is paying more attention to the Fed's remarks in search of hints about "how much will the rate hike and when will the rate hike stop."

Economic growth is slowing down, and if the prediction of non-farm employment in DeepMacro is accurate, then economic growth will slow down further. However, the model's judgment is that this will not stop the Fed, and that the market's expectations of weak economic growth itself will prompt the Fed to suspend is incorrect.

model believes that the Fed's high concerns about high and rising long-term inflation, coupled with the combination of inflation fundamentals themselves, will lead to higher interest rates than market expectations.

Many observers of bearish risk assets point out that this time unlike in the past, the Fed will not be able to pause (or reverse) its interest rate hike policy because inflation is too high. This is true, but in fact, this behavior is typical of every cycle and does not occur only when inflation is as high as it is currently (there has not been such a cycle since the 1970s). In other words, it's just a difference in degree, not in type. At the late stage of the cycle, the Fed is almost always "looking backward", which is also one reason why risky assets usually perform poorly at the current stage of the cycle: the market is expecting lower economic growth and lower inflation, but the Fed is still looking backward, the lingering high inflation risk. (Contact us to view the chart of economic growth and inflation exposure in the turning point trading instrument.)

Figure 5a. Summary of STR-1 of the US short-term interest rate model of DeepMacro, recently (July 4, 2022) and the previous four weeks (units as shown)

Source: DeepMacro (DeepMacro)

DeepMacro (DeepMacro) was created by Wall Street senior economist and famous IT data scientist . It uses artificial intelligence to analyze a large amount of economic data, quantify it into indicators such as economic growth factors, inflation factors, and global investment risk factors to predict global macroeconomic trends. The fully automatic algorithm system uses "big data" to analyze economic conditions and obtain data that is important to the market but does not cover well before the official data is released. Based on these indicators, DeepMacro has built medium-term investment portfolios in various asset classes, including short-term interest rates, foreign exchange and global asset allocation, and has achieved good results. DeepMacro works closely with financial institutions around the world, including major banks, sovereign wealth funds and global hedge fund , to provide paid content, proprietary indicators and consulting services. For more in-depth data analysis and professional explanations, please contact info@deepmacro.com.