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The market has been waiting all week for the US government’s official employment data for December and the result when it came was an astonishing miss of expectations, with payroll-growth of just 74,000.
Putting this alongside the kind of growth we’ve been seeing in recent months shows just how miserable it is: November saw 241,000 jobs added and October had 200,000. In fact, it’s the worst payrolls growth in close to three years.
The unemployment rate dropped to 6.7% from 7.0%, ostensibly better than expectations, but this is a misleading figure. The reason behind the decline is a reduction in the number of people looking for work, with the labour force participation rate plummeting to 62.8%, the lowest in decades. To put it mildly, this is not a positive sign.
This week’s Fed minutes sparked talk that the Fed might be considering picking up the pace of its tapering schedule, but the FOMC was keen to stress that their decision will be paced on the labour outlook and inflation. Both of these now look questionable areas, and I would put forward the suggestion that had the committee had an inkling of the way this latest report would pan out back at the December meeting, they would not have opted to taper. The possibility of no change in January is now back on the table.
The stock market has been far more uncertain towards the weak labour report. On the one hand, maybe the economy isn’t quite as rosy as recent data has suggested, while on other there is now the whiff of a bit more stimulus than investors may have been bargaining for. The Dow fell 0.24% in early afternoon trading on Wall Street, while the S&P 500 stood unchanged.