January’s US employment report, released on Friday, was weaker-than-expected. Last month, payrolls only increased by 49,000 and downward revisions to November’s and December’s data lowered jobs growth by 159,000.
US Payrolls & Unemployment
Source: Bank of Singapore, Bloomberg
The first chart shows the US labour market has still only recovered 12.47 million jobs of the staggering 22.36 million roles lost in the first wave of the pandemic in March and April last year. Unemployment did fall from 6.7% to 6.3% as the second chart shows. But the improvement was due to less people seeking employment as participation dipped from 61.5% to 61.4%. Thus, January’s unemployment and participation rates remain significantly worse than their prepandemic levels of 3.5% and 63.3% respectively.
Savings & Unemployment, US
Source: Bank of Singapore, Bloomberg
America’s sluggish labour market will keep the Federal Reserve very dovish. We expect the Fed will not start ‘tapering’ its quantitative easing this year from its current pace of USD120 billion a
month of bond buying. We also forecast the Fed will not raise its fed funds interest rate from 0.00-0.25% until as late as 2024 or 2025 given the uncertainty about the US economic recovery.
At the same time, January’s weak employment report is likely to increase the Biden administration’s determination for Congress to approve its USD1.9 trillion proposal of fresh assistance to the economy, including increased unemployment benefits, stimulus payments to households, increased spending on healthcare and support for state and local governments.The US government’s ‘Rescue’ package is very large at 9.0% of GDP and follows December’s USD900 billion of emergency aid passed by Congress at the end of the Trump administration. But new Treasury Secretary Yellen - a former Fed Chair - downplayed the risks of the USD1.9 trillion fiscal proposal causing inflation to take off. Instead, Yellen highlights the risk that without further government aid ‘workers and communities [will be left] scarred by the pandemic and the economic toll that it’s taken.’
The likelihood of further large-scale fiscal stimulus is set to keep risk assets supported despite virus waves still holding back growth. Thus, financial markets are likely to keep looking through weak US jobs data in the near term.Disclaimer applicable to recommendation
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