US labor strength should continue

Posted by: Paul Donovan

10 Jan 2020
  • It is US employment report Friday - a festival day in the financial markets. Remember that average hourly earnings are not wages, and have never been wages. Average hourly earnings can slow when everyone is better off. Non-farm payrolls do need to slow at some point. Recent gains are too rapid to be sustained.
  • The data should signal strength. US companies have been scared into an investment pause by the unpredictability of the Trump Twitter Feed and trade taxes. Companies are reluctant to make 30-year investment commitments. But hiring workers is not a 30-year commitment, so labor for capital substitution is sensible.
  • French and Spanish industrial production data is due (also Italian, but Italian production has not had a sustained increase since early 2018). German production data yesterday was better than expected. France and Spain are less affected by the global investment slowdown, and should show production gains.
  • Something happened in the interminably tedious EU-UK divorce (unlikely though that seems). The House of Commons passed the Brexit bill. The House of Lords still has to pass this, and Her Majesty eventually has to take time off from family concerns to assent. The interminably tedious process of negotiation will then continue.

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