The U.S. November jobs report: Good news or bad news?
On the latest edition of Market Week in Review, Chief Investment Strategist for North America, Paul Eitelman, and Senior Client Investment Analyst Chris Kyle discussed the U.S. employment report for November and the uptick in market volatility.
A tale of two surveys: Nonfarm payrolls disappoint, while unemployment rate falls
On 3 December, the U.S. Department of Labour published the jobs report for November, which Eitelman characterised as messy, due to the conflicting data seen in the two surveys used to compile the report. “The headline number in the report, which comes from the establishment survey, showed that U.S. employers only added 210,000 jobs last month - a number far below consensus expectations of around 500,000 new nonfarm payrolls,” he explained. However, the second survey used to produce the report - the household survey, which is used to calculate the U.S. unemployment rate - was exceptionally strong, Eitelman said.
“The household survey showed that the number of employed individuals increased by 1.1 million during November,” he remarked, explaining that this caused the nation’s unemployment rate to fall sharply from 4.6% to 4.2%. This was a positive surprise for most economists, Eitelman said, noting that consensus expectations had called for only a slight drop in the unemployment rate.
Together, these two surveys made for a rather muddled snapshot of the U.S. labour market, he explained, with different takeaways possible based on which survey was looked at more. From Eitelman’s vantage point, however, the overall tone emanating from the November jobs report is ultimately a positive one.
“If you step back a bit and look at the employment situation over the past three months, what you see is an environment of healthy job gains and robust wage growth. Collectively, this is boosting household income at an almost double-digit pace right now, which I believe should keep the U.S. consumer on solid footing as 2021 winds down,” he stated. When recent business surveys from the U.S. and across the globe are factored in as well, the overall global economy looks to be in fairly good shape, Eitelman concluded.
Omicron variant, Powell remarks on tapering unleash volatility in markets
Turning to recent activity in markets, Eitelman noted that the week of 29 November was particularly volatile for both equities and bonds in the wake of news over the emergence of the omicron variant of COVID-19. U.S. Federal Reserve Chair Jerome Powell’s remarks on potentially accelerating the pace of tapering further fuelled the market choppiness, he said, with the central bank leader’s hawkish pivot adding to the overall environment of uncertainty.
“What we’re seeing play out in markets right now is tension between backward-looking economic data - which looks really good - and some storm clouds gathering on the horizon,” Eitelman remarked, “and this is leading to quite the rollercoaster ride for stocks.” Ever since news of the omicron variant broke on 26 November, equity markets have swung wildly from one trading day to the next, he said, overall trending in a downward direction. As of 3 December at midday Pacific time, the benchmark S&P 500® Index was off about 4% from its mid-November high, Eitelman noted, while the MSCI All-Country World Index was down roughly 5%. Meanwhile, in bond markets, long-term U.S. government bond yields were down to around 1.4%, he said, with the U.S. Treasury yield curve flattening on expectations of potentially earlier-than-anticipated rate hikes.
Eitelman stressed that amid this backdrop of uncertainty, it’s important for investors to stick to their long-term strategic plans. “Forecasting what could happen next with COVID-19 is borderline impossible,” he said, “and I believe that staying invested through uncertain times like these is one of the most important ways to achieving success over the long-term and helping meet your goals and outcomes.”
Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.