What's going on?
Data out on Friday showed the US added far fewer jobs than expected last month, in what’s proving to be a pattern the country just can’t break out of.
What does this mean?
The American job market looked much the same last month as it did for most of 2021: the threat of Covid, lack of childcare, and reserves of post-lockdown savings all dissuaded would-be employees from dusting off their interview jackets. So it follows that the US added just under 200,000 jobs in December – less than half what economists were expecting. But if you’re looking for a bright side, the unemployment rate did fall to 3.9% – the lowest since before the pandemic and not far off the 50-year low of 3.5% from February 2020 (tweet this).
Why should I care?
For markets: Wages come, wages go.
The shortage of workers means employers haven’t been able to rest on their laurels. In fact, they’ve probably had to sell their laurels to afford to pay higher salaries, which have driven average hourly earnings up by 4.7% compared to the same time the year before. That’s another expense companies need like a hole in the head, and it could force them to raise their own prices to protect their profits. Last week’s reveal, then, that the Federal Reserve (the Fed) might raise interest rates sooner than expected to keep rising prices in check could be a smart – and necessary – move.
The bigger picture: The ECB’s in denial.
The European Central Bank (ECB) might want to think about following the Fed’s lead: data out on Friday showed consumer prices in Europe climbed by a higher-than-expected 5% last month versus the same time the year before – the biggest jump since the euro was introduced. The ECB has been more dogged than most in its belief that high inflation is temporary, but traders are now betting it’ll have to change its stance and raise interest rates by October.