MACRO: Will a poor NFP reading affect the tapering process?

Friday's primary focus was the November jobs report, which revealed the US economy added fewer jobs than expected throughout November, indicating that hiring had already started to slow before the emergence of the Covid-19 omicron variant. US Bureau of Labor Statistics reported that last month, the US economy added 210K new jobs, versus the 550K expected. On the other hand, the unemployment rate fell 0.4% to 4.2%, a 21-month low, while the total number of unemployed persons dropped by 542,000 to 6.9 million which raised the mood a bit.

The US economy added just 210k jobs in November, which is the weakest monthly reading of the year so far. Source: Bloomberg via ZeroHedge

Before the release of today's Labor Department report many investors believed that a strong job creation number could force the FED to accelerate the tapering process. Now many market participants are wondering whether a mixed NFP report will affect the decisions of the US central bank. On the one hand, the employment growth is really low. Employment in the government sector decreased by 25,000, while the industrial sector increased by 31,000, but below expectations at 45,000. The two-month revision of employment growth is 87,000. From this perspective, net growth does not look that bad. The participation rate slightly increases to 61.8%, which is why such a sharp drop in the unemployment rate is puzzling. It is worth adding that the publication of the unemployment rate is based on a survey of households, not businesses. Nevertheless, taking into account another good ADP report, declining number of initial jobless claims and strong reading of ISM services PMI employment index (which jumped from 51.6  to 56.5 compared with 52.2 estimate), it seems that the Fed will remain on the current path and the pace of tapering process could be increased. On the other hand, slower job creation and slightly lower wage growth may cool down expectations for early interest rate increases.

The differences between the NFP and ADP values again proved to be significant. Source: Macrobond, XTB Research