US Payrolls Disappoint Forecasts

Daily Analysis - 09/01/2017

Moderating Job Creation Offset by Stronger Than Anticipated Wage Growth

US labor fundamentals showed sustained growth during the month December despite payrolls missing expectations and a record number of individuals currently outside the labor force. With the labor market at its tightest point in year, stronger wage growth is likely to bolster the Federal Reserve’s case for additional rate hikes during 2017.

US Unemployment Rises Modestly

The latest report from the US Bureau of Labor Statistics showed job growth tapering during the month of December, falling to 156,000 jobs added compared to the upwardly revised 204,000 gained in November.

The unemployment rate rose modestly as a result, increasing to 4.70% from 4.60% prior as the number of workers not in the labor force rose to a record 95,102,000 individuals. However, despite the weakness on a headline basis, the silver lining was the best wage growth in years.

According to the data, average hourly wages grew by 0.40% in December and 2.90% over the last twelve months, the fastest pace of incline since 2009 in a sign that a tightening labor market is leading to wage growth. In the meantime, US equity futures remain just shy of intraday record highs, with Nasdaq futures remaining firmly above 5000.

German Trade Accelerates, Widening Surplus

After a number of disappointing months for German trade following weaker demand from the Euro Area, figures released earlier by Destatis showed a notable rebound in exports and imports for the month of November. Exports managed to grow 3.90% month over month, shaking off challenging periods witnessed back in September and October as imports also improved, rising by 3.50% during the same period.

While the European Union and Euro Area were a source of weakness for German exports over the last few months, they are showing early signs of recovery with continued upside in trade also likely to benefit inflation down the road. However, despite the optimistic trade figures, other areas of the economy are showing signs of stress, with industrial production expansion tapering during the November to 0.40% from 0.50% a month prior.

Since the data, the DAX 30 has come under renewed pressure, falling back below 11,600.

Canadian Joblessness Climbs

Canadian labor force participation received a dose of positivity in the latest reading with employment rising by 54,000 jobs during December, with full time jobs accounting for the vast majority of the gains.

The rise in the unemployment rate to 6.90% was widely forecast and anticipated, accounting for the relatively limited reaction to the report. Nevertheless, higher oil prices are showing a positive impact on the Canadian dollar as stabilization in crude prices helps buoy the local currency.

In another positive sign for the Canadian economy as it slowly recovers, the Ivey PMI rose to 60.8 from 56.8 during the previous reading, reaching the highest point since May and pointing to increased optimism in the outlook. After a significantly lose streak over the last two weeks, the USDCAD pair is back on the retreat following a modest rebound on Friday.

UK Housing Prices Accelerate Higher

In spite of fears that the Brexit referendum would sink the housing sector, the greater UK economy continues to show tremendous strength during ongoing negotiations with the European Union to leave.

The Halifax House Price Index released earlier in the session showed that on an aggregate basis, UK housing values climbed by 6.50% year over year, beating forecasts which had anticipated the rate slowing from 6.00% to 5.80%. On a monthly basis, price growth surged higher, rising by 1.70% during December compared to 0.60% a month earlier.

Although the outlook is marginally weaker for the sector in 2017 as gains in housing outpace other fundamentals in the economy, December marks the best month for housing since March. After opening at a new record, FTSE 100 futures are on the retreat, falling back below 7150.