U.S. job growth: Weakened, not weak

U.S. job growth: Weakened, not weak

The November jobs report was solid, despite the felt disappointment; OPEC's latest agreement boosted crude-oil prices; Treasuries showed inversions at a couple of points along the yield curve.

“I'm sure oil and gas producers in the U.S. are breathing a sigh of relief after the decision.”
Saudi energy and Industry minister Khalid Al-Falih

U.S. job growth: Weakened but not weak

Headlines led readers to conclude that November job growth in the U.S. was a major disappointment. But while it’s true that November’s 155k fell short of consensus forecasts and below October’s downward-revised 237k growth, both levels were solidly above estimates of the 100k increase it takes to absorb new entrants to the job market.  In addition, average hourly earnings continued the 3.1% year-on-year growth rate of October. The unemployment rate of 3.7%, however, was exactly in line with expectations, and the labor participation rate was unchanged at 62.9%.

Unemployment for workers with high-school but no college (secondary school but no university) reached a new low of 3.5%, but the rate for workers who haven’t completed high school rose, reaching 5.6% in November. For graduates with Bachelor’s degrees or higher, the rate for November was 2.2%.

November’s figures also indicate that the economy continued to pull workers off the bench and into the workforce; workers flowing from “not in the labor force” moving to “employed” is still near its record high three-month moving average.

But the most important reaction to these figures will be seen on December 19th, when the Federal Open Market Committee releases its quarterly economic outlook, revealing their opinions about the course of growth and interest rates for the following year.  Over the past week, a rapid change in sentiment has cast doubt on the expectation that the Fed will raise rates as many as three times in the year to come.

Global oil: OPEC steps back

OPEC’s Friday declaration at the end of its Vienna meeting that it would decrease crude oil production by about 900k barrels (bbl) per day over the next four months brought immediate short-term relief to crude markets, with Brent crude spot prices rising as much as 7.5% and hitting $62.89 as of 11:30 AM ET.  The post-meeting comments left the clear impression that Saudi Arabia would decrease its own production to ensure that the cartel, plus its unofficial members, met its joint pullback commitment.  The Saudi commitment was especially noteworthy, given the public pressure applied by the U.S. to dissuade Saudi Arabia from helping to boost prices.

U.S. yields: Curveball

Fans of recession signals got their first sighting of a yield curve inversion this cycle when the spread between the 2-year and 5-year Treasury yields fell below zero, making that segment of the Treasury yield curve “inverted”, if only by one basis point (bp) or so. The 3 year-5-year spread joined in, reaching just over -2 bps as of Friday December 7. Explanations vary, but one clear consequence of this week’s inversions is the rising doubt over the Fed’s previously-expected three-hike plan for 2019. 



The U.S. Federal Reserve, or “Fed,” is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. The Federal Open Market Committee (FOMC) is the Fed's principal policymaking committee.

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 12 oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries.

The yield curve shows the relationship between yields and maturity dates for a similar class of bonds.

A basis point is one one-hundredth (1/100, or 0.01) of one percent.



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