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US: Nonfarm payrolls fall short of expectations in December

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Nonfarm payrolls in the US in December were announced as 199K, lower than expected 450K. Unemployment rate fell to 3.9%, better than expected 4.1% in market surveys. Two-month net revision in headline employment is 141K upwards. The labor force participation rate was 61.9%. Since there was an upward revision in the previous month’s data, it is possible to see that the decrease in unemployment rate occurred while the pool was expanding. This is a detail that can be evaluated positively in terms of full employment. The long-term unemployment rate, on the other hand, continues to decline with 7.3%, and there is a downward revision to the November data. During the year, the unemployment rate and the number of unemployed fell by 2.8 percentage points and 4.5 million, respectively. In February 2020, before the coronavirus (COVID-19) pandemic, the unemployment rate was 3.5% and the number of unemployed was 5.7 million.

 

Seasonally adjusted unemployment rate, December 2019 – December 2021… Source: Bloomberg, US Department of Labor

 

If we look at the sub-items; Employment continued to rise in leisure and hospitality, professional and business services, manufacturing, construction, transportation and warehousing. An increase of 211K was observed against the expectation of 400K in the private sector. Manufacturing added 26K jobs in December, mainly in the durable goods sectors. Employment in the entertainment and hospitality sector continued to rise in December (+53K). Entertainment and hospitality added 2.6 million jobs in 2021, but employment in the industry has fallen by 1.2 million and 7.2% since February 2020. Employment in catering and drinking establishments increased by 43K in December, but decreased by 653K since February 2020. Employment showed little or no change in other key sectors in December, including retail trade, information, financial activities, healthcare, other services and public.

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Wages increased by 0.6%, above the expectation of 0.4%, while annual wage growth was 4.7%. In wage inflation, November data was revised upwards to 5.1%. Wage increases continue to be supportive, with annual inflation of 6.8%, which will keep the private sector’s demands for salary increases. Therefore, we can see a high wage increase effect in the January update. Leisure and retail temporary hires over the Christmas period will be eliminated in January, there is also the variant effect. For this reason, we may see some slowdown in service sub-sectors. We see the weight loss effect in the headline, but this weakness is relative to expectations. The economy continues to create employment, and sectoral concentration is changing. Probably the service will tend to be a little slower in the short term in the next period. Unemployment rate continues to move towards the target, Fed’s expectation is 3.5% for 2022 (Central tendency 3.4-3.7%). On the other hand, 2021 closed with 3.9%, below the December FOMC projection. The US economy is on the positive side in terms of growth, compared to other central economies, especially the Euro Zone. Inflationist effects still continue, and we continue to see its reflections in the wage-inflation spiral on the demand axis in the market. The growth of the labor pool, the decrease in the unemployment rate and the increase in wages are the positive details of the data.

 

We will monitor the expectations within the framework of the notes set forth in the Fed minutes. The interest rate hike phenomenon in March keeps the bond market in a critical place. The Fed is likely to move faster in terms of lowering the balance sheet over $8 trillion in addition to raising interest rates. While interest increases occur dynamically; There are reservations, such as the Omicron variant, normalization in supply chains, or a slowdown wave from China. These may be the shyness factors in real interest rates. The Fed, on the other hand, revealed its inflation-based image. The 2015 model tapering did not include the hyperinflation variable, so it was spread over time. If the balance sheet doesn’t shrink enough, that is, if it stays above 2014-15 levels, this is a net supportive policy and the Fed may need to act a little faster so that inflation doesn’t get hotter.

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