Thursday, December 4, 2014

US employment factors | Senor Draghi wins the jawboning prize

The release of the official US Non-Farm payrolls report for November later today will, as usual, be closely watched by the markets. Figures released two days ago by the ADP group, a private company, were less than stellar for the same period, but ADP has proven not to be a good indicator of the government survey outcome in the past. Any result that does not show new jobs amounting to a figure that is comfortably above 200k will be interpreted by the market as pushing back the time when interest rates stateside will begin to rise, and will be bad for the value of the US dollar.

As we have pointed out before, however, the US Federal Reserve is not looking at individual monthly figures. Its members are, as they should be, taking into account the overall trend in employment. The chart above shows total US Non-farm employment on a monthly basis, going back to the start of last year. As can be seen, the trend is resolutely upward.

There are two factors included in the rise. These are the effects of the larger number of people who are opting out of the workforce, either through retirement or disillusion brought about by the economic crisis, and an increase in the number of immigrants, both legal and otherwise, who must be accommodated in the workforce. President Obama’s recent initiatives with regard to the regularization of undocumented immigrants are bound to increase this figure.
But the absolute and sustained rise in jobs is still a big positive for the economy. Over in Germany, a study by the well-respected ZEW organization has determined that immigration has added an additional net €22 billion for the use of the German government last year, after taxes paid and benefits drawn by them have been balanced out. Germany, along with many other nations, notably Japan, has an aging indigenous population that must be supported by the welfare system. The new moves to welcome immigrants by the administration in the US are undoubtedly driven by the consideration that something similar is possible there.

Senor Draghi wins the jawboning prize

The ECB montary policy statement and press conference yesterday was something of an anti-climax. Far from announcing what the market expected to hear, that plunging inflation and rising unemployment in the Eurozone had made full-blown Quantitative Easing (QE), to include the purchase of sovereign bonds, a necessity, all that was delivered was a further round of what the Australians call “jawboning”, a series of contingent half promises, that might or might not come to pass in the New Year. In this regard Mr. Draghi has not only joined but exceeded many other central bankers in the developed world.

In fairness to the ECB president and his colleagues, they have, to some extent, been blindsided by the recent and drastic fall in commodities, most notably oil. While the energy factor is the one that is driving down the headline inflation figure, it is also the element that has the potential to increase the confidence of consumers and lead to more spending, provided always that it can be translated into lower costs for those same consumers. In time, this should be a positive for the inflation rate.

The Euro took wings on the strength of the non-story coming out of the ECB (which has moved to very nice new offices in Frankfurt – you can see an interesting time-lapse video of their construction here). This was simply a reversal of the fall that took place the previous day in anticipation of different news from the ECB - whether or not yesterday’s rise in the Single Currency will continue is debatable.

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