Decelerating Job Growth and Wage Gains Power Market Rally

Barry Adams
06 Jan, 2023
New York City

Stocks opened higher after the release of jobs report and the decelerating jobs growth and wage gains powered the market rally supporting the soft-landing scenario.  

The December non-farm payrolls expanded at a healthy pace indicating the labor market strength but not too fast that the Federal Reserve has to consider large-sized rate increases. 

Benchmark indexes surged above 1% and tech stocks rallied on the hopes that the Fed may pivot from its hawkish stance. 

The December payrolls report was the third jobs report indicating the slowing pace of payroll expansion but the U.S. economy is still adding jobs at a healthy pace. 

Despite the seven rate hikes in 2022 and cooling of home sales, the job market keeps expanding and has now recovered all jobs during the pandemic and added millions more. 

 

U.S. Payrolls Expanded In December 

The U.S. economy added 223,000 jobs in December, the smallest monthly increase in two years, the U.S. Bureau of Labor Statistics reported Friday.  

The widely expected monthly employment situation report showed that despite the slowing hiring trend the labor market remains healthy and employers are expanding payrolls. 

In 2022, monthly payrolls increase slowed to 375,000 from 562,000 gains in 2021 and 168,000 in 2019,

In 2022, the U.S. economy added 4.5 million net new jobs.   

The unemployment rate declined to 3.5% in December and drifted in a tight range between 3.5% and 3.7% since March. 

In December, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents, or 0.3%, to $32.82. 

Over the past 12 months, average hourly earnings have  increased by 4.6%.

 

Service Sector Contracts First Time In Nearly 3 Years

The service sector pointed to first contraction in December since May 2020 in the depth of the covid pandemic, the latest survey from the Institute of Supply Management  showed Friday. 

The ISM Services Purchasing Managers' Index declined to 49.6 in December after rising to 56.5 in November. 

Any reading above 50 suggests expansion and below indicates a contraction. 

 

Indexes In Review 

Benchmark indexes opened higher and after two hours of trading accelerated gains on the back of not-too-strong payrolls expansion in December. 

The S&P 500 index increased 1.8% to 3,877.84 and the Nasdaq Composite index jumped 1.8% to 10,493.82. 

Crude oil increased $1.08 to $74.81 a barrel and natural gas hovered near $3.73 a thermal unit. 

The yield on 2-year Treasury notes edged down to 4.27%, 10-year notes declined to 3.57% and 30-year Treasury bonds traded near 3.69%. 

 

Yen Drops Fourth Day In a Row 

Market indexes in Tokyo advanced after the yen weakened for the fourth day in a row and fell from the seven-month high.

The yen continued to drift lower after real wages declined at an annual pace of 3.8% in November, the largest fall since May 2014 and investors also awaited the U.S. jobs report later in the day. 

The bearish sentiment in the yen also got stronger after a report suggested that the Bank of Japan sees no reason to adjust it yield curve control policy. 

The Nikkei average increased 0.59% to 25,973.85 and the broader Topix index closed 0.37% up to 1,875.76. 

For the week, the Nikkei average fell 0.6%. 

Shipping companies, drugmakers and tech stocks led the gainers after investors searched  among beaten down sectors. 

Tokyo Electron, Sony, Honda and Mitsui O.S.K. and Daiichi Sankyo closed higher between 0.5% and 2%. 

 

Best Start In Two Decades for Hong Kong Stocks 

China indexes opened higher but late afternoon selling dragged market indexes lower. 

Hong Kong stocks gained the most in two decades in the first week of trading after investors increased exposure to risky assets and China promised to offer more support for first time home buyers. 

The People's Bank of China said in a statement today that it will permit local authorities to lower mortgage rates for first-time home buyers if property prices fall for three months in a row. 

Internet stocks led the gainers after China signaled the end of regulatory tightening. 

Alibaba.com surged 17%, Baidu increased 14% and Tencent advanced 10% in the first week of trading.  

The Hang Seng index ended down 0.29% or 60.53 points to close at 20,991.64 and the Shanghai Composite index increased  2.42 points to 3,157.64. 

For the week, the Hang Seng advanced 6.1% nearing the increase of 6.7% in 1999 in the first week and the Shanghai Composite increased 2.2%.