Key part of the macro picture of the US economy - labor market data deteriorated sharply in December. The details of the Payrolls report made it clear that macroeconomic news in the US entered period where they’ll likely surprise on the downside. Due to the inertia in the labor market and the absence of new stimulus this could last for one-two months.
Key details of the Friday report:
- The number of people who lost their jobs as a result of businesses liquidation rose by 1 million compared to November;
- The trend of switching to remote work increased from 21.8% to 23.7% in December, which indirectly indicates that social curbs increased in December, with all the ensuing consequences for mobility and consumer spending;
- As a result, leisure and hospitality, recreation and entertainment sectors bore main brunt of employment decline, where about 600K workers lost their jobs. This sharp drawdown reflects how sensitive are those sectors to social distancing measures, with all the ensuing consequences for incomes in the sectors. Note that leisure and hospitality accounts for 10% of employed in the United States. Job growth in other industries offset the overall employment change, which came at -140K.
The bulk of those who lost their jobs in December fell on low-skilled workers whose income is unstable. This instability carries over to consumer spending. Given the trends in telework and business liquidation, December retail sales report is likely to post negative surprise this Friday.
Unemployment in the United States didn’t change in December staying at 6.7% (forecast 6.8%), however, due to pandemic restrictions, government transfers that allow to sit at home and watch TV, significant part of the unemployed who may need work, but do not look for it for various reasons, wasn’t counted. Therefore, unemployment rate may be not so good measure of the labor market slack and it is better to focus on employed-to-population indicator. This measure is significantly lower than its pre-crisis level:
US inflation and consumer confidence data are due on Wednesday and Friday. The consensus forecast is that core monthly inflation will slow from 0.2% to 0.1%, while headline inflation will rise from 0.2% to 0.4%, reflecting higher fuel prices. The index of consumer optimism from U. of Michigan is expected to change slightly compared to December and remain at a very low level of 80 points. Weak labor statistics hint at a negative surprise in the data, which allows us to count on a short-term strengthening of defensive assets, including USD.
Technical picture of USD index:
Having broken through the downward channel, in which it held for two months, USD index began a rapid ascent. Unexpected deterioration of US labor market data appears to be the main contribution to USD advance against other majors. RSI approaching 70 points indicates the presence of momentum, which is known to be unstable and is expected to fizzle out in the 90.50-90.60 zone, followed by a modest pullback. The main selling pressure USD is expected to meet in 91.00-91.20 area. The fate of the bearish dollar trend will depend on the ability of the new administration to approve a new aid package for the US economy and spur inflationary expectations, suppressing the real yield and thus attractiveness of the dollar.
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