US economy

Fed policy back in spotlight as US jobs growth cools

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Good evening,

New data today showed US companies added just 210,000 jobs in November, a sharp slowdown from the previous month and the lowest monthly total in nearly a year. This has raised questions about the right time for the Federal Reserve to begin scaling back its pandemic stimulus.

The Labor Department’s closely watched non-farm payrolls report did however show the unemployment rate continuing to fall, dropping from 4.6 per cent to 4.2 per cent.

The labour force participation rate increased slightly from 61.6 per cent to 61.8 per cent, but, as economics commentator Megan Greene points out, this could soon drop if workers begin to stay at home for fear of infection from the Omicron variant of coronavirus. The new strain was detected for the first time in the US on Wednesday, sending stocks sliding.

Column chart of monthly change in non-farm payrolls in the US (m) showing US jobs growth cools in November

Today’s report also showed average hourly earnings still increasing as companies struggle to attract staff, bringing the annual rate of wage growth to 4.8 per cent and further fuelling fears of spiralling inflation.

The potential for Omicron to add to inflationary pressures by exacerbating supply chain problems and labour shortages was also highlighted by Loretta Mester, a top Fed official, in an interview with the FT today.

Her words on inflation, which hit a 30-year high last month, echoed hawkish remarks on Tuesday from Fed chief Jay Powell by in effect ditching the central bank’s previous position and signalling support for a faster “tapering” of pandemic support.

There were some nuggets of good economic news for president Joe Biden as the week drew to a close.

A shutdown of the federal government was averted after the Senate last night approved legislation to maintain funding until February 18. Opposition Republicans had attempted to torpedo the agreement in protest against new rules forcing companies with 100 workers or more to ensure their workers were vaccinated or tested once a week.

And Biden’s attempts at courting Saudi Arabia, de facto leader of the Opec+ group of oil producers, looked to have paid off as Riyadh agreed to keep increasing production, which should lead to some respite for Americans experiencing soaring prices at petrol stations.

Latest news

  • Zambia has agreed a $1.4bn bailout with the IMF, a crucial step towards ending a debt crisis in the copper-rich but near-bankrupt nation

  • European banks improved their capital buffers, liquidity positions and profitability in the year after the onset of the pandemic, according to the European Banking Authority

  • The UK’s NHS has outlined changes to its booster jab programme, including halving the gap between second and third vaccine doses to three months and allowing access to over-18s

For up-to-the-minute news updates, visit our live blog

Need to know: the economy

European Central Bank chief Christine Lagarde said the ECB was unlikely to raise interest rates in 2022 and that the current high level of eurozone inflation, which hit 4.9 per cent in November, was a passing “hump” and would decline next year.

Michael Saunders, a member of the Bank of England’s monetary policy committee, took a more dovish tone on interest rates than he had previously, saying in a speech today that there were “particular advantages” in waiting for more information on the impact of the Omicron variant.

Latest for the UK and Europe

UK household wealth has reached a record high thanks to climbing property prices and pensions, according to new official data, yet poorer Britons are facing a bleak winter as living costs rise and benefits are cut. Demand at food banks in London is soaring and homelessness is affecting growing numbers of people.

Column chart of showing UK household net worth grew strongly in 2020 (£tn)

Turkey’s central bank intervened in the currency markets for the second time this week to try and support the lira. New data showed inflation rising for the sixth month in a row to hit 21.3 per cent.

More than half of EU businesses were helped by state aid during the pandemic, according to research by the European Investment Bank. Member countries have spent billions of euros on furlough schemes, state-guaranteed loans, grants and tax deferrals, while Brussels launched an €800bn fund to finance governments’ rebuilding plans.

High-frequency indicators that track restaurant bookings, cinema ticket sales and other measures of mobility suggest eurozone consumer activity was knocked back in November because of the new surge of coronavirus infections.

Global latest

Columnist Edward Luce says the US has missed the chance of rebooting its global standing by failing to do enough to vaccinate the world’s poor. As an opportunity for enlightened self-interest, it compares to the Marshall plan, America’s massive postwar aid programme, he argues.

Brazil, Latin America’s biggest economy, has entered a recession after soaring inflation chocked off its recovery from the pandemic. Third-quarter data showed GDP shrinking 0.1 per cent, following a 0.4 per cent fall in the previous quarter.

Inflation in South Korea, Asia’s fourth-biggest economy, rose by 3.7 per cent in November — its fastest pace in a decade.

Need to know: business

The UK parliament’s spending watchdog rapped the government for failing to adequately prevent fraud in its bounceback Covid loan scheme for small businesses. An estimated £5bn was stolen from the scheme, which guaranteed bank loans of up to £50,000 to support businesses during the pandemic.

The success of the hedge fund industry during the pandemic is driving a huge wage battle for top traders, writes sector correspondent Laurence Fletcher. Firms are expanding beyond Wall Street to areas such as Palm Beach and Miami to attract new talent.

United became the first big US airline to warn of the effect of Omicron on passenger numbers. However, despite short-term disruption, chief executive Scott Kirby remained confident that long-term forecasts would hold.

Another sign of confidence in the long-term future of the sector was evident in today’s news of a $5.3bn merger between American Express Global Business Travel and a New York-listed blank cheque company backed by Apollo Global Management.

Science round up

Omicron developments: The new variant has dominated our scientific writing this week. The first detailed study shows that the strain is linked to a much higher rate of reinfection in South Africa.

Graphic showing the key mutations that shape the Covid-19 Omicron variant

It has also become clear that large parts of the world lack the tools necessary to identify new strains, with genomic sequencing concentrated in rich counties. Cases of community transmission — infections with no known travel link — have started to appear in countries such as the UK. Here’s our updated explainer on what we know about Omicron so far.

Vaccines: Vaccine companies are scrambling to clarify how effective their jabs are at countering the Omicron variant. Pessimistic comments from Moderna’s chief executive sent stocks and oil prices lower on Tuesday. There was better news from the UK where the government’s “mix and match” booster strategy was backed by a new study. Here’s our explainer on the challenges facing existing vaccines.

Pandemic management: European Commission chief Ursula von der Leyen called for a debate about mandatory vaccinations, as momentum grows in some member states for reluctant people to be pressured to accept jabs. Germany’s incoming chancellor this week said he wanted to make vaccines mandatory as soon as February. The US announced free rapid Covid-19 tests to try and combat the spread of Omicron.

Despite encouraging cross-border collaboration over the new variant, global health experts have voiced concern that international law on pathogen sharing could hamper the development of new diagnostics, drugs and vaccines to combat future threats.

Treatments: GlaxoSmithKline said its Covid-19 antibody treatment sotrovimab was likely to be able to tackle Omicron, according to early data. Regeneron’s Regen-Cov treatment, a cocktail of two monoclonal antibodies that block the virus that causes Covid-19, was likely to be less effective however. Merck’s molnupiravir pill got narrow backing from a US regulatory panel on Tuesday for use in high-risk patients. New UK data showed 2 per cent of the population had reported symptoms of long Covid.

Covid cases and vaccinations

Total global cases: 236.5m

Get the latest worldwide picture with our vaccine tracker

And finally…

“The FT’s annual Women of the Year has long celebrated achievement and influence,” writes FT editor Roula Khalaf. “With the same objective in mind, we’ve expanded the list for 2021 and asked some of the most influential women in the world to write the entries, including Jane Fraser, Christine Lagarde, Elizabeth Warren, Billie Jean King, Malala and Greta Thunberg. Women of the Year is a celebration, of course. But it is also a lens through which to understand the dynamic nature of leadership and power.”

© Freya Betts

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