Market Wire - US Payrolls Disappoint, But Bolster Monetary Tightening Expectations

Karl Schamotta - Chief Market Strategist

Non-farm payrolls grew by less than expected in December, but strong wage growth, falling unemployment, and historical revisions all helped build the case for a rate hike at the Federal Reserve’s meeting in March. According to the Bureau of Labor Statistics, 199,000 jobs were created last month. Markets had expected a headline number closer to the 450,000 mark, with estimates skewed to the upside - primary dealer forecasts ranged from 260,000 to 600,000 ahead of the release.

Labour markets tightened further: The unemployment rate fell to 3.9 percent - a level only reached a decade after the 2008 global financial crisis. The long-term jobless rate - people unemployed for more than 15 weeks, dropped to 1.7 percent.

Advances were broad-based: According to the establishment survey, 53,000 jobs were added in the leisure and hospitality sector, but the industry remains 1.2 million positions below February 2020 levels. Professional and business services firms added 43,000 jobs in December, while employment in manufacturing grew by 26,000, and construction rose 22,000.

Revisions were to the upside: Numbers for October and November were adjusted by 141,000, bringing the average monthly job gain in 2021 up to 537,000.

Earnings climbed: Average hourly earnings rose 0.6 percent month-over-month, and were up 4.7 percent over the year, putting upward pressure on services prices.

Some workers stayed on the sidelines: The labour force participation rate rose slightly to 61.9 percent, but - according to minutes taken during the December Federal Reserve meeting - policymakers think the economy is already at or near full employment, suggesting that the central bank expects a decades-long decline to continue beyond the pandemic.

The dollar remained almighty: The greenback, which has climbed steadily since Wednesday’s Fed minutes, initially slumped on the release, but quickly retraced as market participants read deeper into the numbers. Traders continue to assign greater-than-80 percent odds to a March rate increase.

Canadian hiring surged: Canada created 55,000 new jobs in December, and the unemployment rate stabilized at 5.9 percent. Markets were expecting Statistics Canada to report a number closer to 27,000, and the loonie leapt more than 40 basis points in the moments after the release.

Gains were mixed: Remarkably, full-time employment rose by 123,000, while the number of people working part-time declined -68,000. The number of jobs in the public sector was 7.9 percent, or 307,000 positions, above pre-pandemic levels, while the private sector was up 1.4 percent, and self-employment remained -8.5 percent lower - a rotation that augurs poorly for productivity gains in the years to come.