Markets: Stocks are lower this morning after trading down in the first week of the year. Worries about surging COVID-19 contagion and Federal guidance for a quicker pace of U.S. tapering and rate hikes sent stocks lower, with the S&P 500 down 1.8% for the week. U.S. Treasury yields jumped last week as markets incorporated expectations of accelerated tapering and rate hikes beginning as early as March. The U.S. 10-Year Treasury yields are up 27 basis points (0.27%) in the first week of 2022 to 1.77%, a new pandemic high. The key economic report was the jobs report on Friday, where the U.S. unemployment fell to 3.9%, below the Fed’s full employment baseline of 4.0%. The U.S. non-farm payrolls added 199,000 jobs, missing consensus estimates of 400,000. The unexpected slowdown in hiring suggested that limited labor supply remains a constraint on employment growth. (GSAM) As of 8 a.m., the S&P 500 futures are down -0.6% (Dow -80), with the 10-year Treasury trading at a yield of 1.78%.
Employment Situation update: (from JP Morgan) Payroll employment grew by much less than expected in December as employers only added 199,000 to payrolls. However, we continue to see signs of labor market tightness, with unemployment dropping to 3.9% and wages rising by a robust 0.6% m/m and 4.7% y/y. The durable rise in wages, as demand for workers far exceeds supply, has added a significant boost to the “sticky” inflation narrative as this week’s upcoming CPI report could show a whopping 7% y/y gain. Moreover, there may yet be room to run on wages. Entering the new year, 21 states increased their minimum wage by an average of 41 cents, with many states approving incremental minimum wage increases for multiple years ahead. While only a small percentage of all workers earn the minimum wage, these increases have the effect of raising the wage floor for all low-wage employees. Apart from these minimum wage increases, workers are also set to get some of the largest cost-of-living adjustments seen in decades. Just as Social Security payments are adjusted annually for cost-of-living changes, many private employers build similar adjustments into their compensation structures. Further, it seems most employers implement these changes in January, as reflected by the non-seasonally-adjusted distribution of monthly wage increases from 2010 to 2019. As we turn to next month’s Jobs report, we may see a larger spike in wages as the increase in minimum wages and cost-of-living adjustments look set to far exceed the historical seasonal patterns.
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Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg
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