US Unemployment Ticks Higher

Daily Analysis - 06/02/2017

Blistering Job Creation Figures Fails to lower the needle for Jobless Rate


In the first employment report of the Trump Presidency, job creation figures managed to exceed nearly all forecasts of analysts and economists after significant labor gains in retail trade, construction, and financial services activities.  Nevertheless, it was not enough to keep a record number of Americans outside the labor force as the unemployment rate rose to 4.80%.

US Payrolls Surge Past Expectations

After a positive headline result, a little digging into the latest US unemployment data showed some surprising indications about the pace of economic activity, especially that underemployment and slow wage growth are prevailing.  As a result, the expectations of a forthcoming rate hike from the Federal Reserve over the coming months has been pushed back further into the year, with futures only pricing in the likelihood of two hikes throughout the calendar year.

Although the figure marked the strongest job growth in four months, the prior two months’ figures were revised in another setback for employment measures, with November and December job growth reduced by 39,000 jobs.  Further, the labor force participation rate on hold failed to acknowledge that a record number of Americans eligible to work are currently outside the labor force. The dollar extended its slide after the announcement, pushing gold prices to the highest close since November.


Australian Retail Falls in December

Mirroring a spate of underperforming fundamentals, Australian retail sales recorded a -0.10% contraction during December versus expectations of 0.30% growth and a prior figure revised lower from 0.20% to 0.10% expansion.  Food along with clothing and footwear were the predominant forces behind the gains in the retailing figure, but were overshadowed by the -2.30% decline in the sale and consumption of household goods.

Besides marking the first negative print since July, December’s retail figure echoes the slippage evident throughout the economy as growth falters, unemployment rises, and inflation remains tepid.  While no major changes are expected on the monetary policy front during this week’s decision from the Reserve Bank of Australia, a further deterioration in fundamentals may merit additional easing of rates.  After a major uptick last week, the Australian dollar has erased nearly all of Friday’s gains versus the dollar following the retail data.


China Services Sector Growth Slows

After reaching the highest point in seventeen months, the Chinese Caixin Services Purchasing Managers’ Index reported monthly by Markit Economics saw growth decelerate modestly to 53.1 in January from the 53.4 reported in December.  The positive underlying theme in the latest release was the employment component which rose by the most since 2015, offsetting the more pessimistic tapering in output and new order growth.

However, with the week-long Lunar New Year holiday behind, attention is being refocused on the stealthy move last week to raise repo-rates modestly by 0.10% in a form of monetary tightening.  Besides marking the first such action of its type in 2-years, it could indicate that growth may be poised to face significant pressure over the coming months. After strengthening last week, the Yuan has reopened slightly weaker, with USDCNH reversing all of Friday’s losses.


German Industrial Orders Climb By Fastest Pace in 2-Years

Factory orders in Germany reversed the prior month’s -3.60% decline with a more rapid than expected 5.20% increase in new orders during the month of December.  The gains in factory activity were predominantly due to resurgent domestic orders which climbed by 6.70% while orders from within the European Union surged by 10.00%.  However, aside from demand domestically and within the EU, the remainder of the globe experienced no change.

In the meantime, on the political front, German Chancellor Angela Merkel is rapidly facing a new threat to her longstanding political career from Social Democrat candidate Martin Schulz.  With the party rapidly gaining traction in the polls, financial markets are already reacting to the development as measures of credit risk rise to the highest point since the British referendum over the summer.  The DAX 30 has reacted negatively since the weekly reopening, trending towards last week’s lows.


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