US Labour Market and Tapering
Fundamentals Update as at 13 January 2014 by Lorenzo Beriozza
The December US Labour market report came in on a very worrying note, as job creations almost stalled. Only 74,000 positions were added in December, after an average of 205,000 over the previous three months. At the same time, the unemployment rate plunged, at 6.7%, its lowest in more than five years, but for “bad” reasons, as the labour participation ratio fell back to its October level of 62.8%. A possible explanation could be the poor weather conditions in December which impacted the number of workers in construction sector, as well as the unusual high number of hires in November across all industries.
The slowdown came to a surprise to most analysts, as the consensus was for 200,000 positions to have been added in December. Even the “pessimistic” forecast of 150,000 was beaten down, however. For sure, survey data, from the ISM or the ADP, were in line with a positive outcome, but the trend in weekly initial claims (based solely on that set of data, 135,000 job creations could have been expected) was more worrying.
The slowdown in job creations is widespread.
Construction, after having added 15,000 positions a moth between September and November, cut payrolls by 16,000.
The manufacturing industry kept on creating jobs, but at a slow pace of 9,000 (versus a 3- month average of 19,000 as of November).
While the government sector cut back almost all the positions added in November, the most marked slowdown came from the private-service sector. Only 90,000 positions were added by the sector, i.e. half the pace recorded between September and November, with even more worrying signals, like the trend in business-services (19,000 after an average of 50,000 over the previous three months) or the rebound in recourse of temporary workers.
At the same time, weekly hours worked decreased, even if slightly, and hourly earnings decelerated, up a limited 1.8% year-on-year. Even the decline in the unemployment rate, from 7% in November to 6.7%, is no good news, as among the 490,000 people that left unemployment, only 143,000 regained a job. 347,000 people simply quit looking for a job, as there is none to be found.
The last report confirms a minority view according to which the Fed should have been a little more patient before announcing the tapering. But a single report is not to change their view and the January meeting should see QE3 monthly purchases cut back by an additional USD 10 billion.
Source: BNP Paribas, Commerzbank
