Employment matters more than equities

Posted by: Paul Donovan

06 Dec 2019
  • The US monthly employment report is due on Friday – when markets become frenzied with excitement about a number that is wrong. Since 2018, the change in non-farm payrolls has been revised on average over 39,000 a month. The data should show that employment is still unsustainably strong in the US. At some point, there needs to be a slowdown in jobs growth (or more immigration).
  • Today's average hourly earnings numbers are not wages. Creating low paid jobs lowers average hourly earnings but raises household incomes. Income supports US consumers – durable goods spending accelerated this year. It is just as well there is income growth; two thirds of Americans say they are not affected by the equity market.
  • China has begun to waive trade taxes on Chinese consumers of US pork and soybeans. This comes after China's rapid food price inflation, but investors view it as a positive development in the trade conflict. Less helpfully the US is blocking a loan from the World Bank to China.
  • German industrial production will be hit by weak global investment (Germany makes investment goods) and the auto sector (Germany used to make cars). Swedish industrial production is due, and OPEC is supposed to bring "beautiful news" to markets today.

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