Harder, Better, Faster – Stronger?

US jobs data gave stock markets a boost

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What's going on?

Official data released on Friday showed that the US added way more jobs than expected in December – sending investors to work buying up stocks.

What does this mean?

The US economy added 312,000 new jobs last month, eclipsing predictions – and the estimated number of jobs added in November was revised higher too. In order to get all these people into work (and convince some to ditch their existing jobs in the process) employers probably offered more generous pay packets – helping boost average US earnings by 3.2% over 2018, also ahead of forecasts. Attractive wages likely caused more people to declare themselves available for work in December; but not all found jobs by Christmas, leading to an increase in the unemployment rate.

Why should I care?

For markets: Spotlight on interest rate decisions.

Strong December employment data suggests the US economy is still chugging along. That encouraged investors to look past the slowdown in manufacturing activity and buy up US companies’ stocks in anticipation of strong profits ahead (tweet this). Rising wages typically leads to higher inflation – richer people buy more, pushing the prices of goods and services up – and that could well justify the US Federal Reserve’s planned interest rate rises, which would stop prices increasing too fast. But investors are skeptical: early last week, 90% thought US rates would hold steady or fall this year. In the eurozone, meanwhile, rates still appear set to rise in 2019 – despite prices there rising at an increasingly sluggish rate in December.

The bigger picture: Flexi-time also gave markets a boost.

Also on Friday, the Federal Reserve’s chair said he was more open to slowing down rate hikes or the withdrawal of other market support (a journey Europe’s just begun) than some investors had previously thought. This gave stocks a further boost: a bit more flexibility can’t hurt when US-China trade discussions – and the fortunes of the world economy – are still up in the air.

Originally posted as part of the Finimize daily email.

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