This article is written by Ipek Ozkardeskaya, Senior Market Analyst at FCA regulated broker London Capital Group Holdings plc (LON:LCG).
Ipek Ozkardeskaya, LCG
The US will release the final labour figures of 2016 on Friday and the expectations are rather soft.
According to analysts, the US economy is expected to have added 178’000 new non-farm jobs in December, slightly higher than a month earlier, yet still below the 12-month average of 193’000. If this is the case, the average monthly NFP change in 2016 will decline to 190’000, versus 222’000 in 2016.
The unemployment rate could have deteriorated to 4.7% at the end of 2016, from 4.6% in November. Still, the US unemployment data would have improved 0.3 percentage points throughout the year, as the unemployment rate stood at 5% in January 2015. The participation rate in the US has remained below 63% since April 2014, mainly due to structural changes in the US economic activity and demographical evolution.
The average hourly earnings could have picked up by 0.3% on month to December, to compensate the 0.1% month-on-month contraction in November. As such, a US worker’s average hourly wages would have grown 2.8% year-on-year during 2016.
Overall, any potential disappointment in the US jobs data could cause a deeper downside correction in the US dollar and US yields. Yet, the short-term outlook for the US labour market will likely be impacted by a positive vibe amid Donald Trump’s plans for boosting jobs in the US.
US labour market post-Trump
News that Donald Trump is already on track for bringing jobs back to the US hit the newswires shortly after Donald Trump won the US presidential election on November 9th 2016.
The President elect has already taken credit for saving 1000 jobs at Carrier, bringing back 5000 jobs at Sprint, America’s fourth largest network operator and creating 3000 more jobs at the US satellite company, OneWeb.
Ford stepped back from $1.6 billion worth of expansion in Mexico and redirected investment to Michigan amid criticism.
Similar actions will likely be taken under Donald Trump’s rule, as boosting jobs in the US was a priority during his election campaign and he is already on action to bolster growth and prosperity in the US after a long and persistent economic crisis devastated the US’ economic tissue post-2008 subprime crisis.
In the short-term, preventing the delocalisation of US companies and repatriating some US’ businesses back to the country will create jobs and improve wages.
In the medium to long term, Trump’s strategy raises many questions, especially regarding the costs and the efficiency of companies operating from the US instead of cheaper destinations such as China, South America, or South East Asia.
In this perspective, the direct implications of higher labour costs will be a rapid automation of basic tasks and a partial replacement of the workforce by machines, although the production is carried on the US territory.
Although the automation could appear to be an issue, it may not be as damaging as first thought. In fact, the real question should be whether a faster than otherwise automation process could hurt the economy in the long-term. The answer could well be negative. One way or the other, the automation is the future in many manufacturing and industrial processes. It is just a matter of time before machines take the place of employees. Of course, Donald Trump could potentially fasten the process, which could then increase companies’ costs. But even in this scenario, the tax compensation could leave the companies with little damage on their balance sheets.
Consequently, the US labour market is sure expected to be subject to another, and yet premature structural shift. Though this could mean job losses in some departments, one should not forget that the automation process per se would also create jobs, as well as the Research and Development departments that would directly contribute to the implementation of new and more efficient processes.