Travel and entertainment could remain somewhat depressed if a new wave emerges. However, other parts of the economy would likely see very little disruption and, as has been the case over the past two years, some spending on services could be diverted to the goods sector.
The economy should enter 2022 with a tailwind of strong wage growth, falling unemployment, and huge gains in asset prices. This week’s economic reports, and particularly Friday’s jobs report, should provide further evidence that the economy is gathering momentum in the fourth quarter.
Wells Fargo’s View
This week’s NFP report will highlight the data docket, with the update potentially impacting the Fed’s taper timeline. NFP is forecasted to have risen by 500,000 in November, building on the prior months better than expected 531k. The unemployment rate likely dropped to 4.5% from October’s 4.6% figure.
Concerns over the Omicron coronavirus variant indicate that US economic data must remain solid to avoid the market from downgrading interest rate hike expectations, which would hit the dollar, according to ING.
US Unemployment Rate: 4.5%
Other Economic Indicators This Week
US ADP Employment Change Actual 534 K (Forecast 525 K, Previous 571 K)
Previous Market Reaction
DXY strengthened initially strengthened then it weakened, S&P 500 strengthened. US 10 Year yield saw an initial jump, but then weakened post-release. Gold saw more whipsawing and no clear direction on the 5-minute chart until around 9 AM ET when the DXY started to weaken.
What Is It?
Nonfarm Payrolls is the measure of the number of workers in the U.S. excluding farm workers and workers in a handful of other job classifications. This is measured by the Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls. The BLS reports the Nonfarm Payroll numbers to the public on a monthly basis through the closely followed “Employment Situation” report.
Why is it important?
The NFP report is a key economic indicator for the United States. It is intended to represent the total number of paid workers in the U.S. minus farm employees, government employees, private household employees, and employees of nonprofit organizations.
What are the fundamental effects?
Wages and salaries from employment make up the main source of household income. The more workers there are, the more they buy and propel the economy forward. If fewer people are working, spending drops off and businesses suffer. Both the Federal Reserve and the markets pay close attention.
How does it affect markets?
CURRENCY - A strong report may drive interest rates higher, making the Dollar more attractive to foreign investors.
STOCKS - For stocks little or no growth in employment is generally bad for stocks. Weak sales shrink corporate income and earnings.
BONDS - A series of weak employment reports reflects a more sluggish economy, which may be bullish for bond prices and interest rates may head lower.
Last Months Report:
Total nonfarm payroll employment rose by 531,000 in October, and the unemployment rate edged down by 0.2 percentage points to 4.6%, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread, with notable job gains in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing. Employment in public education declined over the month.
The unemployment rate edged down to 4.6% in October. The number of unemployed persons, at 7.4 million, continued to trend down. Both measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain above their levels prior to the coronavirus (COVID-19) pandemic (3.5% and 5.7 million, respectively, in February 2020).