Basic conclusion
The new non farm employment in the United States in December may be underestimated, triggering further warming of the Fed’s expectation of raising interest rates. The redefinition of “full employment” by the Federal Reserve may determine the rhythm of interest rate increase and table contraction in the future.
The number of new non farm jobs in the United States in December was much lower than expected. Specifically, the United States added 190000 non-agricultural jobs in December, lower than the expected 447000, the lowest since January last year; In December, the unemployment rate was 3.9%, a new low since the outbreak of the epidemic; The labor force participation rate in December was 61.9%. In terms of working hours and salary, the average working hours per week in December remained at a high level of 34.7 hours; The average hourly salary in December was 0.6% month on month, far exceeding the average in the same period in recent 10 years.
In December, the non-agricultural sector in the United States was “cold”, and the expectation of raising interest rates unexpectedly increased. Considering that the US inflation rate continues to be high and has reached the target, the repair process of the job market will determine the rhythm of interest rate increase and table contraction in the future. However, after the non farm “cold” in the United States in December, the probability of the Fed’s interest rate increase in March implied in CME interest rate futures once soared from around 70% to more than 90%. At the same time, the yield of 10Y US bonds once broke the 1.8% mark, a new high since the outbreak of the epidemic.
“Weak” non-agricultural triggered “strong” interest rate hike expectations, mainly due to the possibility that the new non-agricultural employment in December was underestimated. It should be noted that in November and October, the number of new non-agricultural employment increased from 531000 and 210000 to 648000 and 249000 respectively, continuing the upward trend since June. In other words, the number of new non-agricultural employment in December may be underestimated. Meanwhile, the high growth rate of average working hours and wages in December also points to the high prosperity of the U.S. job market.
In addition, the “weird” combination of new employment and low unemployment rate is more affected by the difference of statistical caliber. The U.S. non farm employment report includes institutional and household surveys. The new non farm employment adopts the institutional survey caliber, and the unemployment rate adopts the household survey caliber. The unemployment rate continued to drop, due to 651000 new jobs and 483000 unemployment in December according to the household survey. Taking history as a mirror, with the correction of institutional survey data, the two deviate or converge.
Looking forward to the future, the U.S. job market is expected to continue to repair, but we need to be vigilant against the normalization of low employment willingness and high wage growth pushing up inflation. Taking into account that the United States promotes enhanced acupuncture and anti covid-19 oral medication, which has exceeded expectations, the epidemic tends to be “influenza”, which will promote the continuous repair of employment. However, the existence of “post epidemic trauma” may suppress the willingness to employment for a long time, resulting in the difficulty of returning the labor force participation rate to the pre epidemic situation. Against this background, we need to be vigilant against high wage growth and push up the inflation center.
The redefinition of “full employment” by the Federal Reserve may become a key signal for deciding to raise interest rates and shrink the table in the future. Due to the slow recovery of labor force participation rate in the United States, some Fed officials have begun to discuss the definition standard of “full employment”. For example, St. Louis Fed chairman Brad (2022 voting Committee) said that “the employment level before the epidemic is not an appropriate reference standard”. Under the neutral scenario, the Federal Reserve may redefine the standard of “full employment” at its January meeting, end taper in March and discuss the interest rate increase, implement it in May, and then shrink the table.
Risk warning: the covid-19 epidemic situation in the United States rebounded beyond expectations; The labor force’s employment willingness remained sluggish.
