Good morning, this is Paul Donovan, Chief Economist at GBS Global Wealth Management. It's 7 o'clock in the morning London time on Thursday the 4th of December. The US labour market is, rightly, a key economic focus.
It is low fear of unemployment that has allowed US consumers to reduce their savings rates over the course of this year. It's that reduction in the US savings rate that has paid for the increase in US prices that's taken place since April in particular. Without this, the US economy would be in a notably weaker state.
The dependence on not just the state of the labour market but the perceived state of the labour market is therefore very important. Today there is another initial jobless claims number and this is likely to attract quite a lot of market attention. The recent ADP payrolls figure was weak.
This is not of itself a major alarm, at times the ADP payrolls number seems to resemble nothing so much as a random generator but that reading does increase the emphasis on the claims number due today. Initial jobless claims does matter to fear of unemployment but it may not actually capture the entire state of the US labour market. This is because the narrative in the States all year has been about a reluctance to hire on the part of businesses.
Refusing to hire workers means that new entrants to the workforce become unemployed but they may not be eligible for unemployment benefits and thus would not appear in the jobless claims numbers. There have been suggestions that artificial intelligence is preventing hiring. This has the appearance of a convenient excuse used by chief executive officers to cover up for past incompetence in over hiring.
We're not seeing for instance problems with youth unemployment outside the United States. Rather this reluctance to hire probably has more to do with the general uncertainty around the policy environment. That's very important because over time companies will learn to live with that uncertainty and this labour market characteristic could therefore fade somewhat in 2026.
There was another strong bond auction in Japan, yet again reminding global investors that a country that has spent three decades managing a rising level of debt might actually be quite adept at funding that rising level of debt. Huge amounts of domestic wealth are available for the purpose after all. Yields have risen on expectations about the direction of Japanese monetary policy but there seems to be no prospect of a funding crisis.
The recent angst about Japan's debt has largely been international investors with global investors seeing applying seemingly applying simplistic concerns alongside limited local insight. In Japan's case the near irrelevance of international investors to the domestic bond market means that fake news can be ignored. In other countries that are more dependent on foreign money fake news about debt may become a bigger concern.
The US administration has rapidly retreated from plans to sanction China's Ministry of State Security in order to keep the trade truce with China in place. This shift might be taken as a sign of growing realisations of the potential economic costs to the US of increasing trade tensions and it is part of a series of moves to shift trade policy positions since the recent US elections. That's all for today.
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