A new jobs report will be released on Friday morning by the U.S. Bureau of Labor Statistics and investors are eagerly waiting to see the results.
The state of the job market is closely tied to Fed’s decisions on raising interest rates: the strongest available policy for the agency to steer the course of the economy, impacting consumer demand, inflation, lending and other major issues.
While official figures for the job market will be out tomorrow, a preliminary report released Thursday revealed a glimpse into what to expect.
ADP Research, in collaboration with Stanford Digital Economy Lab, announced on Thursday morning the U.S. economy, led by consumer-facing service industries, added 235,000 jobs in December 2022.
Nonfarm payrolls increased by 263,000 in November, keeping steady from September and October numbers.
The State Of The Job Market As 2023 Begins
This week, the tech space started the year with bad news: tech companies are continuing the layoff spree that marked the sector in the latter half of 2022.
CRM giant Salesforce Inc CRM announced it would be cutting loose 10% of its workforce, while Amazon.com, Inc. AMZN will shed 18,00 employees.
As it was the case last year, Big Tech layoffs are not representative of the state of the overall job market.
The tech sector is an outlier when it comes to U.S. jobs, which are strongly supported by small and medium-sized businesses. Even Amazon’s massive cut only represents 1.1% of its entire workforce worldwide.
Although the overall headcount came in positive in ADP’s report, several industries dropped workers, including manufacturing, financial and transportation. Big companies also dropped employees.
Companies between 1 and 500 employees led the job boost, according to ADP, while companies with more than 500 workers dropped over 150,000 openings in December alone.
What Does This Mean For The Stock Market?
A strong job market could be bad news for stocks.
As the Fed stands by its monetary policy to bring inflation back down to 2%, unemployment becomes a key figure to gauge the impact of the massive wave of interest rate hikes it inserted throughout 2022.
The current federal funds rate stands between 4.25% and 4.50% after the Fed raised the rate by 0.5% in December. Just one year ago, the rate stood at between 0% and 0.25%.
The ADP report already had its impact on the major indexes on Thursday.
The Dow Jones Industrial Average is down 1.12%, S&P 500 is down 1.06% and the Nasdaq Composite is down 1.13% at the time this article was written.
The indices could drop even lower after the official jobs report is released. A strong job market will signal the Fed that its monetary policies are not taking a big toll on employment, meaning that it could continue to raise interest rates in order to bring down demand, which should eventually help reduce inflation.
Low demand means less activity for businesses, which could lead to pessimism amongst investors.
Historically low unemployment levels of 3.7% further support tighter Fed action.
On Thursday, the Federal Trade Commission proposed a new rule that would ban employers from imposing noncompete contracts on their workers, calling it “a widespread and often exploitative practice” affecting approximately 30 million people “that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.”
The approval of such a rule could help boost the job market even further.
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