At the end of December, almost all of the brokerages and economists downgraded the US GDP forecast for 2023. This was due to the sharpest rise in interest rates during 2022. But the data release of the first month itself led to upward revisions of these projections. The most surprising data was related. To the employment market.
The Non-Farm Payroll was near 6 months high at 517,000 compared to 263,000 last month. Even the temporary employment data increased from last month. The only data that showed signs of distress was Job cuts announcements which were the highest since September 2020. Despite this, the unemployment rate remained at 3.5%.
All of the above data indicates the current economic levels are stronger than anticipated. The important data releases would be during Q2 as the job cuts would start reflecting in unemployment data. At the same time, the results of companies would also reveal the impact of the 6 to 8 % cuts they announced.
If a slowdown is accompanied by the high probability of further rate hikes during the mid-year then companies would be forced to announce a second and sharper level of job cuts.
This would coincide with weaker data as compared to the start of the year. Such a combination would lead to downward pressure on second-half projections impacting financial markets and the economy.