U.S. hourly wages rose 2.9% in 2016 and underemployment dropped; the FOMC worried about excess growth, while Eurozone optimism improved.
“December was an incredible month.”
US jobs: More wages, more workers At first glance, the December jobs report was uninspiring; the 156k gain in non-farm payrolls in December was somewhat below expectations, while the unemployment rate inched higher to 4.7%. Yet there was good news elsewhere: average hourly earnings rose 0.4% vs. November, bringing the full-year rise to 2.9%, a number not seen for over seven years; the underemployment rate fell to 9.2%, a level last reached in April 2008; and the labor participation rate rose slightly, to 62.7% from a revised 62.6%. What’s more, 2016 marks the sixth full year with total job gains above 2 million.
In total, those statistics suggest that workers came off the sidelines and directly into the labor force in December, in response to the ongoing tightening of the labor market. This augurs well for the Fed's stated estimate of two to three rate hikes in 2017.
The Fed: Behind the curtain The minutes of the December 13-14 FOMC meeting, which saw the second rate hike of the current economic cycle, revealed details of members' concern about a possible "upside risk" of faster-than-expected economic growth – presumably from a shift to fiscal stimulus by the incoming Trump administration. Though confirming the word "gradual" for the path of upcoming rate hikes, some members seemed worried they might be insufficiently hawkish in the light of a possible economic growth spurt.
Argentina: No net Making good on his campaign promises to end impediments to foreign investment in his country, President Mauricio Macri rescinded the rule that required incoming foreign funds to stay in the country for at least 120 days. That rule was itself a loosening of previous controls; the original rule, put in place in 2005, kept funds in-country for a full year – which Macri himself dialed back to 120 days within a month of taking office just over a year ago.
This latest change, combined with the removal of other currency controls and the settling of outstanding international debts, clears the way for full participation in global capital markets – including the possibility of regaining membership in emerging-market indexes, having been "demoted" to frontier-market status due to restrictions on capital flows. Re-entry into these benchmark indexes also offers the possibility of regaining access to emerging-market equity investors.
Eurozone: Contagious optimism The Brussels-based European Commission (EC) surveys Eurozone business and consumer confidence monthly to generate its Economic Sentiment Indicator. For December, the indicator reached 107.8, at the top of the range of expectations, above November's upward-revised figure, and the highest level since March 2011. One possible impact of this growing positive outlook might be political; with elections taking place in several European countries this year, including France and Germany, where anti-EU candidates have shown strength, improving sentiment could bode well for pro-EU incumbents.