What To Expect From 2022’s First Week

It’ll be back to the monitors, even if it’s not back to the office this week.

And on those monitors will be numbers. Asset prices, yes, but also top-tier data out of the world’s largest economy.

On deck in the US is the usual slate for the first week of the month, including December payrolls.

Consensus expects ~420,000 from the headline NFP print (figure above).

The last payrolls Friday seems like a lifetime ago, but those of you old enough to remember last month might recall that November’s report was something of a conundrum. The headline print missed the lowest estimate, but revisions added to the prior months’ gains, the participation rate rose and the unemployment rate fell to 4.2%, the lowest since February 2020. Also, there were mixed signals from the two surveys.

“While participation is still shy of pre-pandemic levels, given the shift in the composition of the workforce, this isn’t necessarily the concern for the Fed it might once have been,” BMO’s Ian Lyngen and Ben Jeffery said. “The 55-year and older cohort has seen a drop in participation that hasn’t (and most likely won’t) be reversed this cycle,” they added, before noting that “25-34 year old participation drop[ped] as low as 79.4% early in the pandemic, but has recovered to 82.6%, into the 2018-2019 range, albeit not the pre-pandemic peaks.”

One of the more notable takeaways (especially considering the data was collected prior to the Omicron tsunami) was a complete loss of momentum in leisure and hospitality. The sector added just 23,000 jobs in November, the worst showing since January 2021 (figure below).

Food services and drinking places added just 11,000 positions. That was the second worst month of 2021, behind August, when the Delta wave contributed to a decline of nearly 9,000.

That raises obvious questions about how the spread of a more transmissible variant might impact hiring in high-contact sectors during December and January.

The figure (below) plots hiring in food services and drinking places with the monthly change in spending at restaurants and bars. It speaks for itself, but even if it didn’t, I provided annotations.

December payrolls should provide valuable insight into how employers and workers are assessing the risks associated with operating high-contact businesses during the most aggressive virus wave of the entire pandemic.

The decision calculus involves weighing much higher odds of transmission against the rollout of booster shots, the introduction of effective oral therapeutics and evidence that suggests the new strain is less likely to cause severe disease.

If momentum in leisure and hospitality hiring was waning headed into December, it could be more difficult to get a clean read on the situation — that is, harder to differentiate between the Omicron effect and other factors holding back hiring.

Prior to December payrolls, traders will get November JOLTS, which will surely show the US labor market remained bedeviled by an acute mismatch between vacancies and hires. Expect plenty more “Great Resignation” headlines.

Recall that the last JOLTS data showed job openings in accommodation and food services rose the most for any month in 2021 and the second most in series history. That was yet another testament to the notion that employers in the services sector are still plagued by a dearth of workers.

Plainly, Omicron will continue to dominate headlines, both in the economic context and otherwise. Some now worry the US could see as many as a million new cases per day by mid-month.

Stocks, meanwhile, enter the new year riding high (simple figure below).

Global equities took in nearly $1 trillion in 2021, the S&P never breached its 200-DMA and US equities notched the second-most closing highs for any year on record.

That sets a high bar for 2022.

Also on deck this week: Factory orders, the December FOMC minutes, ISM manufacturing and services, and a handful of Fed speakers.

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