OPINION
Market Rating Before FOMC MeetingJan 31
Omicron is likely to halt the rise in Non-Farm Payrolls
Labor statistics for December 2021 will be published by the US Department of Labor today at 15:30 (GMT+2). Financial markets are focused on non-farm payrolls data, which is considered as an important indicator of the labor market.
In the data published by the Bureau of Labor Statistics (BoLS) of the Department of Labor last month, non-farm payrolls increased by 210 thousand, which is well below the expectations of 550 thousand. In the labor statistics for that period, the unemployment rate decreased from 4.6 percent to 4.2 percent, while the average hourly earnings on monthly basis increased by 0.3 percent.
*Chart-1: Non-farm payrolls change, ADP private sector employment change, and the number of jobless claims are divided by 10,000 in the chart above. The left axis of the chart shows Non-farm payrolls and ADP data, and the right axis shows the number of jobless claims.
It is predicted that non-farm payrolls will expand by 500 thousand, close to the previous level. The decline in jobless claims is also an important factor in that prediction (Chart-1).
On the other hand, in the National Employment Report prepared in cooperation with ADP Research Institute and Moody's Analytics, private sector employment increased by 807 thousand in December, which makes an important contribution to maintaining the positive outlook of expectations for non-farm payrolls. Private sector employment increased by 534 thousand in November (Chart-1).
However, record numbers of cases in the world's largest economy creates a strong barrier on expectations. According to Our World In Data, 727,863 new cases were reported in the United States in the last 24 hours. On January 3, the highest number of cases on a daily basis of the pandemic period was reached with 1,018,935.
It was also revealed by the data of the Institute for Supply Management that the increasing number of cases due to the Omicron variant put pressure on expansion in the sectors that create the largest employment in the economy. According to ISM, manufacturing purchasing managers' index (PMI) for December fell to 58.7 from 61.1. Besides, non-manufacturing purchasing managers' index (PMI) fell to 62.0 from 69.1.
We believe that the slowing of the growth rate in manufacturing and non-manufacturing (service, construction) activities, which are the locomotive sectors of the economy, will make private sector employment to have a positive effect on all non-farm sectors.
Although a few measures were taken against the Omicron variant in the United States, ceasing the business activities is not on the agenda. However, the negative impact of high global case numbers, especially in Europe, and its downward pressure on US households' consumption are narrowing the path for the labor market recovery.
On the other hand, it is known that as of 2020, the federal budget will be spent faster. And it is almost certain that the Fed will end its balance sheet expansion faster than projected in the initial guidance. To sum up, we estimate that non-farm payrolls data, which is effective in the monetary policy decisions of the Fed, will increase by nearly 500 thousand in December.
If December data reveal that the strong recovery in the labor market continues, it will possibly increase the possibility of the Fed's interest rate hike to be earlier than expected, and may affect the asset pricing through the debt instruments channel.
In the data published by the Bureau of Labor Statistics (BoLS) of the Department of Labor last month, non-farm payrolls increased by 210 thousand, which is well below the expectations of 550 thousand. In the labor statistics for that period, the unemployment rate decreased from 4.6 percent to 4.2 percent, while the average hourly earnings on monthly basis increased by 0.3 percent.
*Chart-1: Non-farm payrolls change, ADP private sector employment change, and the number of jobless claims are divided by 10,000 in the chart above. The left axis of the chart shows Non-farm payrolls and ADP data, and the right axis shows the number of jobless claims.
It is predicted that non-farm payrolls will expand by 500 thousand, close to the previous level. The decline in jobless claims is also an important factor in that prediction (Chart-1).
On the other hand, in the National Employment Report prepared in cooperation with ADP Research Institute and Moody's Analytics, private sector employment increased by 807 thousand in December, which makes an important contribution to maintaining the positive outlook of expectations for non-farm payrolls. Private sector employment increased by 534 thousand in November (Chart-1).
However, record numbers of cases in the world's largest economy creates a strong barrier on expectations. According to Our World In Data, 727,863 new cases were reported in the United States in the last 24 hours. On January 3, the highest number of cases on a daily basis of the pandemic period was reached with 1,018,935.
It was also revealed by the data of the Institute for Supply Management that the increasing number of cases due to the Omicron variant put pressure on expansion in the sectors that create the largest employment in the economy. According to ISM, manufacturing purchasing managers' index (PMI) for December fell to 58.7 from 61.1. Besides, non-manufacturing purchasing managers' index (PMI) fell to 62.0 from 69.1.
We believe that the slowing of the growth rate in manufacturing and non-manufacturing (service, construction) activities, which are the locomotive sectors of the economy, will make private sector employment to have a positive effect on all non-farm sectors.
Although a few measures were taken against the Omicron variant in the United States, ceasing the business activities is not on the agenda. However, the negative impact of high global case numbers, especially in Europe, and its downward pressure on US households' consumption are narrowing the path for the labor market recovery.
On the other hand, it is known that as of 2020, the federal budget will be spent faster. And it is almost certain that the Fed will end its balance sheet expansion faster than projected in the initial guidance. To sum up, we estimate that non-farm payrolls data, which is effective in the monetary policy decisions of the Fed, will increase by nearly 500 thousand in December.
If December data reveal that the strong recovery in the labor market continues, it will possibly increase the possibility of the Fed's interest rate hike to be earlier than expected, and may affect the asset pricing through the debt instruments channel.
