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US: Details on job growth and inflation

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November employment report includes expectations that non-farm payrolls will be realized as 546K and unemployment rate will decrease to 4.5%. In the report in October, we saw that the unemployment rate fell to 4.6%, the lowest level since the pandemic. Total non-farm payrolls, on the other hand, increased by 531K, well above the expectations. Net revisions to the previous two months were also positive, adding another 235K to employment growth in August and September. At the same time, of course, it will be necessary to pay attention to the wage data in the report. In terms of inflation indicators, it is one of the details that the Fed should address, and maximum employment should also be evaluated in terms of inflation. Average hourly earnings were up 0.4% last month, pointing to an annual increase of 4.9%. This rate of increase will likely accelerate further this month.

 

The stronger job growth lately is evidence that some headwinds are holding back job growth, namely the Delta variant of COVID and labor shortages starting to die out. Higher fees can help with this. Entry into the workforce appears to be taking place slowly. We expect workforce availability to remain a hiring constraint in the months ahead. More noticeable improvement will come when COVID risks are lower and childcare issues are better resolved. The increasing distance between financial support and inflation’s crumbling in individuals’ spending power will provide a financial imperative to return to work. These factors can help hiring continue at a strong pace and keep employment on track to recover towards the end of next year. In terms of the Fed’s criteria, it is necessary to evaluate the contribution to growth and the effect of inflation together. How it will cause a movement in interest rates will depend on how much inflation will be associated with the event. The short-term side will appear more active both in inflation expectations and in the yield curve.

 

Details from November’s FOMC minutes pointed to mixed views on inflation, but hinted that it would be ready to raise rates “earlier than currently expected” if warranted by the data. That’s why more focus has been placed on the week’s upcoming employment report. The key area for us to watch is how far incoming US data could lead the Fed to a more aggressive contraction. The FOMC began slowing the pace of its securities purchases by $15 billion a month this month and is on track to finish purchases by June 2022. However, policymakers were less convinced that the increase in inflation was temporary; If inflation does not soften soon, monetary policy could be tightened more aggressively. An unprecedented increase in the costs of firms in November is pointed out. The employment report will therefore add valuable insight into the health of the labor market and in particular the repercussions of hyperinflation on wage growth – which has now reached a 31-year high of 6.2%.

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