Moderating Jobs Growth and Wage Gains Lifted Indexes 2%

Barry Adams
06 Jan, 2023
New York City

Stocks advanced on the hopes that the slowing jobs growth and weakening service sector may cool inflation. 

The December non-farm payrolls expanded at a healthy pace but not too fast indicating the labor market is healthy and growing at a slower pace. 

The moderating pace of job growth lifted hopes that the economy may avoid the hard landing scenario and may even nudge the Fed from raising rates too fast and keeping higher rates too long.   

In other words, the economy is strong enough to adjust to higher interest rates and may manage to avoid sharp decline in business activities. 

Benchmark indexes surged above 2% and tech stocks rallied on the hopes that the Fed may pivot from its hawkish stance and may even consider pausing rate hikes. 

The December payrolls report was the third jobs report in two days this week 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 by July 2022 recovered 25 million jobs lost during the pandemic months and added nearly 2 million more jobs on the payrolls. 

Despite the job gains, labor force participation rate has hovered around 62% and employment-to-population ratio around 60.0% in 2022.  

 

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. 

 

U.S. Indexes In Review 

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

Friday's rally erased market losses of the week and halted 4-week decline in the row. 

The S&P 500 index increased 2.3% to 3,895.08 and the Nasdaq Composite index jumped 2.6% to 10,569.29.

For the week, the S&P 500 index increased 1.5% and the Nasdaq Composite index rose 0.9%. 

Crude oil increased 14 cents to $73.80 a barrel and natural gas increased 4 cents to $3.76 a thermal unit. 

The yield on 2-year Treasury notes edged down to 4.26%, 10-year notes declined to 3.57% and 30-year Treasury bonds traded near 3.68%. 

 

European Markets Advance on Weakening Inflation 

Europe market indexes rallied after the inflation eased, consumer sentiment improved and retail sales rebounded in the Euro Area. 

The easing of inflation lifted market sentiment after consumer prices rose at the slowest pace encouraging investors to bid up stock prices. 

The large four economies of the Euro Area, Germany, France, Spain and Italy, have reported easing of inflation in December and only Italy reported double-digit inflation. 

The decline in natural gas prices and crude oil impacted the overall inflation data but food and beverage prices continue to advance at elevated pace. 

Moreover, the deceleration in the U.S. job growth in December also contributed to the market advance. 

 The U.S. economy added 223,000 jobs in December, the smallest monthly increase in two years and averaged 375,000 a month totaling 4.5 million in 2022. 

The easing of payroll expansion also empowered investors on both sides of the Atlantic to bid up stocks. 

 

Euro Area inflation Eased 

Consumer prices in the Euro Area dropped to a 4-month low after energy prices dropped but core inflation accelerated in December. 

The Euro Area inflation eased to 9.2% in December from 10.1% in November and dropped to a four-month low, Eurostat reported Friday. 

Energy prices rose at a slower pace but prices for food and beverages accelerated.

Energy prices rose 25.7% from a year ago in December but the pace of increase declined from 34.9% in November and 41.5% in October. 

Core inflation, which excludes energy, food, alcohol and tobacco, advanced to 5.2% from 5.0% in November. 

 

Euro Area Retail Sales Rebounded In November 

Retail sales in the euro zone rebounded in November reversing the decline in the previous month, Eurostat reported Friday. 

Retail sales rose 0.8% on a monthly basis in November after contracting from the downwardly revised 1.5% decline in October when retail sales fell the most since December 2021. 

Retail sales declined from a year ago 2.8% in November after falling 2.6% in October.

 

Euro Area Consumer Confidence Less Negative 

The European Commission survey showed that the euro area consumer sentiment was less negative at the end of the year. 

The confidence indicator improved to -22.2 in December, matching the preliminary estimate, from -23.9 in the previous month. 

 

Europe Indexes In Review 

The DAX index increased 1.2% to 14,610.02, the CAC-40 rose 1.5% to 6,860.95 and the FTSE 100 index advanced 0.9% to 7,699.49. 

The yield on 10-year German Bunds edged lower to 2.19%, French bonds inched lower to 2.71%, UK Gilts to 3.49% and Italian bonds 

Brent crude oil fell 34 cents to $78.28 a barrel and Dutch natural gas futures contract fell 4% to $69.53 a thermal unit. 

The euro edged lower to $1.06  and the British pound fell to $1.209. 

 

Europe Stock Movers 

Mining and resource stocks advanced on the hopes of improving business activities in China after authorities said the first wave of virus may have peaked in Beijing and in Tianjin. 

Glencore,  Antofagasta and Anglo America gained between 1% and 2%. 

Shell Plc, BP, plc, TotalEnergies SA, Repsol SA and Eni SpA rose between 1% and 3%. 

Essentra Plc dropped 7.9% to 215.50 pence after the maker and distributor of plastic and metal components said fourth-quarter revenue declined 3% for its continuing business. 

The company said full-year 2022 sales increased 6.5% after adjusting currency fluctuations and excluding discontinued operations. 

The European  business has continued to deliver growth at "moderated levels," whilst the US business has faced greater headwinds, with signs of distributors drawing down inventories. 

Sales in Asia were impacted by lockdowns in China however business activities are expected to pick up in the first half of 2023. 

Clarkson Plc rose 5.3% to 3,312.50 pence after the investment banking and broking services providers to the shipping industry reported strong activities in the final quarter of 2022. 

The company said its pro-tax profit in 2022 is estimated at