almost 3 years ago • 3 mins
The US can’t stop teasing investors with the prospect of an economic boom: data out on Friday showed the US economy added 379,000 jobs in February – almost double the 200,000 economists were predicting.
What does this mean?
The unemployment rate dropped from 6.3% in January to 6.2% last month, and unlike previous months, the “participation rate” – the proportion of people who are either working or seeking employment – didn’t drop. In other words, there were more people who joined the workforce than there were people who gave up looking for work altogether.
One number economists are paying extra-close attention to is “average hourly earnings”, which was only marginally higher in February than it was in January. That suggests there’s still room for plenty of jobs to be added before businesses have to start hiking wages to tempt in new applicants. Makes sense: the US is still some 9.5 million jobs short of where it was before the pandemic landed.
Why should I care?
For markets: The US is on stronger footing.
Employment reports give an almost real-time insight into how the economy is doing, and last week’s update bodes well. Now that hiring seems to be back on track, there’ll be more people working – and therefore able to spend – when a vaccinated America fully reopens for business. That should be good for economically sensitive cyclical stocks in particular, some of which rose on Friday.
The bigger picture: Just the idea of higher rates is enough to knock stocks.
An influx of newly employed workers with a bit more cash to burn seems to have investors worried that inflation is set to climb. And while the US Federal Reserve has said interest rates won’t change for a while yet, the prospect they will was enough to push investors to sell off their stocks on Friday.
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Data out late last week showed that a key measure of food prices rose for the ninth month in a row in February – to its highest in six years.
What does this mean?
The last time the United Nations’ gauge of global food prices rose for this long was back in 2008, and it was followed by a major food crisis. This time around, though, the most affected countries will probably be emerging and frontier markets: those that are more reliant on ingredients like rice, whose price rose 76% last year. That’s definitely not good news for Nigeria, whose average household already spends half its income on food. The irony is that this jump in food prices is partly down to another emerging market: China’s been buying up huge amounts of crops from around the world as local weather threatens its harvests.
Why should I care?
For you personally: It’s trickle-down economics at work.
Developed markets like the US and Europe should be relatively insulated from rising food prices, but they’re not immune: food producers will likely try to pass their higher costs onto food retailers, which will, in turn, probably pass them onto you. That’s not ideal: economists are hoping you’ll put any money you’ve saved during the pandemic toward economy-boosting nice-to-haves, but you won’t have as much to spend if you’re paying more for the essentials. It’s not the thought of your pursestrings that’s keeping the experts up at night, mind you: if you don’t spend, the global economy could well fall short of growth forecasts.
For markets: Inflation, inflation everywhere.
Food prices aren’t the only reason investors are getting worried about rising inflation: the oil price just hit its highest level since April 2019. Too-high inflation would encourage central banks to effectively increase interest rates, which is why some investors have been selling off bonds and the priciest stocks in preparation.
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