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 Friday 02 December 2016

US Non-Farm Payroll update - PM Bulletin



November’s Non-Farm Payroll number came in at 178,000. Early calls had been for an increase of 165,000 – a modest rise from October’s 161,000. However, this was pushed up ahead of the release, thanks in part to a better-than-expected ADP number earlier in the week. Just ahead of the release the consensus forecast came in around 180,000, although some analysts were even predicting a number of 200,000 or above.

So on the face of it today’s headline number was pretty much as expected and also “Goldilocks” – not too hot and not too cold. In other words, good enough for the Fed to tighten later this month, but not too strong to worry that the US economy was beginning to run away with itself. It’s worth noting that October’s number was revised down to 142,000 from 161,000.

But there were other considerations in today’s data. The Unemployment Rate fell to 4.6% - it lowest level since the end of 2007 - and well below the 4.9% rate anticipated. This is also at the lower end of a band considered to represent full employment, so yet another good reason for the Fed to raise rates on 14th December. However, the fall in unemployment comes as the participation rate slumped, meaning that an increasing number of Americans have given up looking for work so are no longer counted as being unemployed. In addition, Average Hourly Earnings fell 0.1% month-on-month, well below the +0.2% expected and last month’s +0.4%. This is bad news for employees as it suggests that wages are being squeezed even as inflation is picking up.

There have been some concerns recently that the Fed risks getting behind the curve when it comes to monetary tightening. The latest readings on US GDP and Manufacturing have surprised to the upside. Add in the additional stimulus of Trump’s proposed tax cuts and infrastructure spending and it’s easy to see how inflation could soon soar past the Fed’s 2% target. Then investors would start to worry that the Fed will have to raise rates further and faster than is currently being priced in. This could see bond yields shoot higher which would be very bad news for equities. But today’s data should help allay fears of runaway inflation. However, it would be surprising to see equities rally much from current levels ahead of the Italian referendum on Sunday.


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Posted by David Morrison

Category: PM Bulletin

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