Unemployment rates and monetary policies
On Friday we saw the release of non-farm payroll in the US and for the second consecutive month, fewer jobs were added than the market had anticipated. However, the markets soon reacted favourably as investors focused on the bright spots in the labour market. Only 113k jobs were created in January compared to the market’s 180k forecast but the unemployment rate continued to fall while average hourly earnings and the labour force participation rate increased. The “jobs report” can be volatile and the fact that job growth increased at all is a positive sign for the economy. Whilst not showing hugely strong growth, by adding an average of 177,500 jobs per month for the last 6 months, the figures are not bad enough to alter the Fed’s taper plans. To clarify, the U.S. economy continues to recover, albeit at a slower than anticipated pace.
This week we will see The Bank of England release its Quarterly Inflation Report, unlike the Federal Reserve, their backs are against the wall because the unemployment rate is falling faster than they anticipated. The BoE also tied itself to an unemployment rate threshold and they are now only 0.1% away from that level. However, the recovery in their economy is not strong enough to handle an increase in interest rates, which had been promised to be the first step in unwinding stimulus. Today’s industrial and manufacturing production numbers confirm that now is not the time for the BoE to tighten monetary policy. The recent slowdown in manufacturing and service sector activity is a sign that the economy still needs support.
There are no major Eurozone economic reports until the end of the week when fourth quarter GDP numbers will be released.