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Jobs Numbers Fall, Markets Stay Positive

Karl Schamotta January 8, 2021

The United States lost 140,000 jobs last month, far below expectations as tightening lockdown restrictions slammed the service sector in many of the country’s most populous states. A report released this morning by the Bureau of Labor Statistics showed 498,000 positions destroyed in the leisure and hospitality sector through December, with employment in the industry down a little over 23% from pre-pandemic levels. On the other side of the ledger, delivery services, big-box retailers, and construction industries eked out gains, with robust holiday spending levels and a red-hot housing market helping to generate new jobs.

The headline unemployment rate held at 6.7%, slightly below consensus estimates that were set at 6.8% – bit this apparent stability largely stemmed from a 135,000-position upward revision in the data for the prior two months.

The broader U-6 unemployment rate – which includes people who aren’t currently working or looking for work but who are available for work, and those working part-time roles for economic reasons – fell to 11.7% from 12.0% previously.

Markets are likely to look through the data however, with labor market conditions expected to improve as the working age population begins to receive vaccinations and newly approved stimulus spending starts to flow. With little evidence of a broad-based economic slowdown, and job losses largely concentrated in occupations that rely on face-to-face interaction, hopes for a snapback remain largely intact.

The dollar has reversed higher in recent days, with a series of political events helping to strengthen Democratic control of Congress – increasing the likely scale of fiscal spending, ratcheting growth expectations higher and pushing long-term Treasury yields upward. If anything, today’s numbers could bolster arguments for more rescue funds, and add further momentum to the greenback recovery.

Here in Canada – where we raid the US Capitol on a much less frequent basis – the economy lost 62,600 jobs in December, missing expectations for a 37,500-position contraction. The unemployment rate increased to 8.6% from 8.5%.

Below the headline level however, things looked considerably brighter – although 99,000 part-time jobs were lost in the month, 36,500 full-time positions were added.

The Canadian dollar fell slightly as the twin reports were released, but remains within spitting distance of a two-year high, with a rapidly appreciating oil price intersecting with strong domestic consumption levels to keep yields and capital inflows elevated.
Karl Schamotta
Chief Market Strategist