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Short-Dated Term Premia and the Level of Inflation

Since the advent of derivatives trading on short-term interest rates in the 1980s, financial commentators have often interpreted market prices as directly…

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Since the advent of derivatives trading on short-term interest rates in the 1980s, financial commentators have often interpreted market prices as directly reflecting the expected path of future interest rates. However, market prices generally embed risk premia (or “term premia” in reference to measures of risk premia over different horizons) reflecting the compensation required to bear the risk of the asset. When term premia are large in magnitude, derivatives prices may differ substantially from investor expectations of future rates. In this post, we assess whether term premia have increased with the recent rise in inflation, given the historically positive relationship between the two series, and what this means for the interpretation of derivatives prices.  

Estimating Term Premia

A common way to measure term premia is to use a dynamic term-structure model (DTSM) that prices bonds and matches the time-series dynamics of yields. Using a term-structure model, the term premium may be estimated as the difference between the fitted yield of a zero-coupon bond and the model’s forecast for the average short-term risk-free rate over a horizon equal to the bond’s maturity. Defined in this way, the term premium has the interpretation of an expected return measure for an investor who purchases a longer-dated bond that is financed at the short-term risk-free rate.

The chart below plots the yield and term premium for a two-year zero-coupon bond in the Adrian-Crump-Moench (ACM) term-structure model from January 1962 to June 2022. The chart shows that the historical term premium estimates were at their peak during the high inflation period of the late 1970s and early 1980s; estimates of the term premium were as high as 1 to 2 percent at this time but have, in general, experienced a downward secular trend over the subsequent forty years.

Term Premiums Were High when Interest Rates and Inflation Were High

Line chart plotting the three-month moving average of the two-year fitted yield against the two-year term premium from the Adrian-Crump-Moench (ACM) five-factor model using monthly data from January 1962 to June 2022. The chart shows that the historical term premium estimates were at their peak during the high inflation period of the late 1970s and early 1980s; estimates of the term premium were as high as 1 to 2 percent at this time but have, in general, experienced a downward secular trend over the subsequent 40 years.
Sources: Federal Reserve Bank of New York; Federal Reserve Board of Governors; authors’ calculations.
Note: This chart plots a three-month moving average of the two-year fitted yield against the two-year term premium from the Adrian-Crump-Moench (ACM) five-factor model using monthly data from January 1962 to June 2022.

The term premia estimates based on the ACM term-structure model have several attractive features including being available over a long sample period that dates to the 1960s. At the same time, term premia estimates from any DTSM are ultimately model specific. To complement the DTSM approach, we also estimate short-dated term premia using survey-based measures of expected interest rates and the market-implied path of short-term interest rates from derivatives. This approach does not rely on a specific forecasting model or bond pricing model. Instead, the term premia estimate is obtained as the market-implied path less the survey-expected path.

To illustrate how the survey-based estimates work, we consider an example from June 2022. The market-implied path of the federal (fed) funds rate is derived from fed funds futures contracts and overnight index swaps (OIS) on June 23, 2022. Survey expectations for the corresponding horizons are obtained from the Blue Chip Financial Forecasts (BCFF) survey at the end of June 2022 by computing the average forecast across participants over the forecast horizon. The market data are lagged by one week to approximate the information that forecasters may have had when submitting their forecasts prior to month-end. The survey-based term premia measure is the difference between the market-implied yield and the survey expectation.

As shown in the chart and table below, the survey expectations are above the market-implied yields on June 23, 2022, indicating that the survey-based term premia estimates are negative and equal to -17 basis points (bps) for a six-month horizon and -12 bps for a twelve-month horizon based on the OIS-implied rates. The term premia estimate using fed funds futures data over a six-month horizon is similarly negative at -14 bps.

Short-Dated, Survey-Based Term Premia in June 2022 Were Small

Scatter chart showing the market-implied path of the fed funds rate from futures contracts and overnight index swaps versus survey forecasts from the Blue Chip Financial Forecasts on June 23, 2022. The chart reports the zero-coupon rates at the observed maturities and the interpolated rates which closely align. The survey forecast is the average forecast across participants, which is then averaged across horizons to match the three-, six-, twelve-, and eighteen-month interpolated rates.
Source: Authors’ calculations.
Notes: This chart plots the market-implied path of the fed funds rate from futures contracts (FF) and overnight index swaps (OIS) versus survey forecasts from the Blue Chip Financial Forecasts (BCFF) Survey. To derive the market-implied path, we bootstrap zero-coupon rates from raw OIS quotes and futures settlement prices from Bloomberg L.P. and then linearly interpolate to a fixed maturity grid. The chart reports the zero-coupon rates at the observed maturities and the interpolated rates which closely align. The survey forecast is the average forecast across participants which is then averaged across horizons to match the three-, six-, twelve-, and eighteen-month interpolated rates.

Survey-Based Term Premium Estimates for June 2022

Horizon (months)361218
Implied rate from Overnight Index Swaps (OIS)2.072.583.013.02
Implied rate from federal funds futures (FF)2.092.61
Survey forecast average2.402.753.133.23
OIS term premium-0.33-0.17-0.12-0.21
FF term premium-0.31-0.14
Source: Authors’ calculations.
Notes: The table reports implied rates and survey forecasts matching the chart above at the interpolated maturities. The implied zero-coupon rates are from June 23, 2022. The survey forecasts are from the June Blue Chip Financial Forecasts. The survey-based term premium is the difference between the implied rate and the survey forecast.

Short-Dated Term Premia Estimates and the Level of Inflation

We can apply the same approach as above to generate a long time series of survey-based term premia using the BCFF survey. The BCFF survey has forecasts available going back to 1982 for the fed funds rate and from 1987 to 2021 for the three-month Libor (London interbank offered rate). Combining these measures with the market-implied paths of interest rates for the three-month Libor from eurodollar futures and for the fed funds rate from fed funds futures and OIS, we expand on the ACM term-structure estimates to report survey-based term premia measures dating back to the 1980s.

The chart below illustrates the results. Each term premia measure is reported going as far back as possible subject to data availability. The eurodollar measure for the three-month Libor term premium stops in 2021 after which the BCFF switches to forecasting the secured overnight funding rate (SOFR) rather than Libor. Despite the differences in methodologies and data sources, the short-dated term premia measures follow a broad trend. During the 1980s and 1990s when inflation was generally higher, short-dated term premia were also higher. Since the early 2000s, the level of inflation and short-dated term premia have generally been low and relatively stable.

Term Premia Were Higher in the 1980s and Early 1990s

This chart reports the one-year term premium estimate from the Adrian-Crump-Moench (ACM) model alongside survey-based estimates using eurodollar futures, fed funds futures, and overnight index swaps (OIS).
Source: Authors’ calculations.
Notes: This chart reports the one-year term premium estimate from the Adrian-Crump-Moench (ACM) model alongside survey-based estimates using eurodollar futures, fed funds futures, and overnight index swaps (OIS). The ACM estimates are from the Federal Reserve Bank of New York. The survey-based estimates use market data that are lagged by one week to approximate the information that forecasters may have had when submitting their forecasts prior to month-end. The sample periods for the survey term premia measures are based on data availability. We use Blue Chip Financial Forecasts (BCFF) survey forecasts which are available from October 1982 for the fed funds rate and from December 1987 to December 2021 for the three-month Libor. Bloomberg L.P. data are employed for fed funds futures and OIS. For eurodollar futures, we use historical CME Group data from the start of the sample to March 2017 and then use Bloomberg data. When three-month Libor forecasts are unavailable in the early part of the sample, we backfill using the fed funds forecasts based on a projection that is estimated during the latter period when both series are available. The chart reports a three-month moving average of the monthly term premia estimates.

Zooming in on the more recent period, the chart below reports term premia estimates over different horizons using the ACM term-structure model and survey forecasts of fed funds futures and OIS data. The survey-based measures have remained close to zero since the onset of the Covid-19 crisis but have begun to decline in recent months, similar to the decrease going into the last rate hiking cycle that started at the end of 2015. Although the one-year and two-year ACM term premia have turned positive, they remain at low levels. 

Various Measures of Short-Dated Term Premia Have Remained Low

Source: Authors’ calculations.
Notes: This chart reports a three-month moving average of the monthly term premia estimates since 2010 using the Adrian-Crump-Moench (ACM) term-structure model and using survey forecasts with fed funds futures (FF) and overnight index swaps (OIS) data over different horizons. The data are from the Federal Reserve Bank of New York, Bloomberg L.P., and the Blue Chip Financial Forecasts Survey.

To conclude, we have shown that historical estimates of term premia have tended to be high when inflation was also high. Given the recent rise in inflation, one might expect a commensurate rise in term premia. We find, however, that various measures of short-dated term premia have remained relatively small in magnitude, implying that current market prices do approximately reflect investors’ expectations for monetary policy over the near term.

 

Richard K. Crump is a financial research advisor in Macrofinance Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Charles Smith is a former senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Peter Van Tassel is a financial research economist in Capital Markets Studies in the Federal Reserve Bank of New York’s Research and Statistics Group. 


Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

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nTIDE November 2022 Jobs Report: People with disabilities continue to outperform people without disabilities in labor market

East Hanover, NJ – December 2, 2022 – Job numbers rose again for people with disabilities, in contrast to people without disabilities, according to…

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East Hanover, NJ – December 2, 2022 – Job numbers rose again for people with disabilities, in contrast to people without disabilities, according to today’s National Trends in Disability Employment – Monthly Update (nTIDE), issued by Kessler Foundation and the University of New Hampshire’s Institute on Disability (UNH-IOD). People with disabilities continued to show strength in the labor market in November, as evidenced by the substantial rise in their employment-to-population ratio.

Credit: Kessler Foundation

East Hanover, NJ – December 2, 2022 – Job numbers rose again for people with disabilities, in contrast to people without disabilities, according to today’s National Trends in Disability Employment – Monthly Update (nTIDE), issued by Kessler Foundation and the University of New Hampshire’s Institute on Disability (UNH-IOD). People with disabilities continued to show strength in the labor market in November, as evidenced by the substantial rise in their employment-to-population ratio.

Month-to-Month nTIDE Numbers (comparing October 2022 to November 2022)

Based on data from the U.S. Bureau of Labor Statistics (BLS) Jobs Report released today, the employment-to-population ratio for people with disabilities (ages 16-64) increased from 35.5 percent in October to 36.5 percent in November (up 2.8 percent or 1 percentage point). For people without disabilities (ages 16-64), the employment-to-population ratio decreased from 74.6 percent in October to 74.4 percent in November (down 0.3 percent or 0.2 percentage point). The employment-to-population ratio, a key indicator, reflects the percentage of people who are working relative to the total population (the number of people working divided by the number of people in the total population multiplied by 100).

“Similar to last month, the employment-to-population ratio for people with disabilities increased and remains above historic highs. For those without disabilities, however, the ratio dropped,” said John O’Neill, PhD, director of the Center for Employment and Disability Research at Kessler Foundation. “This decline may be a sign of the Fed’s efforts to slow the labor market. This is interesting in light of this month’s strong gain for people with disabilities.”

Findings were similar for November’s labor force participation rate. For people with disabilities (ages 16-64), the labor force participation rate was increased slightly from 38.7 percent in October to 38.8 percent in November (up 0.3 percent or 0.1 percentage point). Conversely, the labor force participation rate decreased slightly for people without disabilities (ages 16-64), from 77.1 percent in October to 76.9 percent in November (down 0.3 percent or 0.2 percentage point). The labor force participation rate is the percentage of the population that is working, not working, and on temporary layoff, or not working and actively looking for work.

“While labor force participation for people with disabilities remains stable, increases in the employment to population ratio for people with disabilities suggest that more people with disabilities are succeeding in finding jobs,” remarked Debra Brucker, PhD, research associate professor at the UNH-IOD. “Keep in mind that gains in employment may in part reflect the need to boost income in the face of rising prices. Also, these data are not seasonally adjusted, so some of this increase may be due to seasonal employment.”

Why have people with disabilities been outperforming people without disabilities? Favorable changes in the workplace as employers adapted to COVID-19 restrictions may be a factor. Our new survey compares the workplaces of 2017 and 2022, revealing gains in recruiting, hiring, accommodating, and retaining employees with disabilities. Read more about the 2022 National Employment & Disability Survey: Effects of COVID-19 Pandemic Supervisor Perspectives.

Year-to-Year nTIDE Numbers (Comparing November 2021 to November 2022)

Reflecting the continued strength of the employment of people with disabilities over the course of the year, the employment-to-population ratio for working-age people with disabilities increased substantially from 34.6 percent in November 2021 to 36.5 percent in November 2022 (up 5.5 percent or 1.9 percentage points). However, the employment-to-population ratio increased slightly for working-age people without disabilities, from 73.8 percent in November 2021 to 74.4 percent in November 2022 (up 0.8 percent or 0.6 percentage points).

Similarly, for people with disabilities (16-64), the labor force participation rate increased substantially from 37.7 percent in November 2021 to 38.8 percent in November 2022 (up 2.9 percent or 1.1 percentage points). The labor force participation rate increased slightly for people without disabilities (ages 16-64), from 76.7 percent in November 2021 to 76.9 percent in November 2022 (up 0.3 percent or 0.2 percentage points).

In November, among workers ages 16-64, the 5,962,000 workers with disabilities represented 4 percent of the total 148,009,000 workers in the U.S.

Ask Questions about Disability and Employment

Each nTIDE release is followed by an nTIDE Lunch & Learn online webinar. This live broadcast, hosted via Zoom Webinar, offers attendees Q&A on the latest nTIDE findings, provides news and updates from the field, as well as invited panelists to discuss current disability-related findings and events. On December 2, 2022 at 12:00 pm Eastern, Chai Feldblum, JD, vice chair the of Ability One Commission, a federal agency devoted to the employment of people with significant disabilities, joins Drs. O’Neill and Brucker, and Denise Rozell, Policy Strategist at the Association of University Centers on Disabilities (AUCD). Join our Lunch & Learns live or visit the nTIDE archives at: ResearchonDisability.org/nTIDE.

NOTE: The statistics in the nTIDE are based on Bureau of Labor Statistics numbers but are not identical. They are customized by UNH to combine the statistics for men and women of working age (16 to 64). nTIDE is funded, in part, by grants from the National Institute on Disability, Independent Living and Rehabilitation Research (NIDILRR) (90RT5037) and Kessler Foundation.

About the Institute on Disability at the University of New Hampshire

The Institute on Disability (IOD) at the University of New Hampshire (UNH) was established in 1987 to provide a university-based focus for the improvement of knowledge, policies, and practices related to the lives of persons with disabilities and their families. For information on the NIDILRR-funded Research and Training Center on Disability Statistics, visit ResearchOnDisability.org.

About Kessler Foundation

Kessler Foundation, a major nonprofit organization in the field of disability, is a global leader in rehabilitation research that seeks to improve cognition, mobility, and long-term outcomes – including employment – for people with neurological disabilities caused by diseases and injuries of the brain and spinal cord. Kessler Foundation leads the nation in funding innovative programs that expand opportunities for employment for people with disabilities. For more information, visit KesslerFoundation.org.

Stay Connected with Kessler Foundation

Twitter | Facebook | YouTube | Instagram | iTunes & SoundCloud

To interview an expert, contact:

Deborah Hauss, DHauss@kesslerfoundation.org;

Carolann Murphy, CMurphy@KesslerFoundation.org.

 

 


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Scientists reveal encouraging findings in first-in-human clinical trial evaluating HIV vaccine approach

NEW YORK and LA JOLLA, CA—While scientists have struggled in the past to create an effective vaccine against HIV, a novel vaccine design strategy being…

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NEW YORK and LA JOLLA, CA—While scientists have struggled in the past to create an effective vaccine against HIV, a novel vaccine design strategy being pursued by researchers at Scripps Research, IAVI, Fred Hutchinson Cancer Center (Fred Hutch) and the National Institutes of Health, National Institute of Allergy and Infectious Diseases (NIAID) Vaccine Research Center (VRC) shows new promise, according to data from a first-in-human clinical trial.

Credit: CHRISTOPHER COTTRELL, CREATED WITH BIORENDER.COM

NEW YORK and LA JOLLA, CA—While scientists have struggled in the past to create an effective vaccine against HIV, a novel vaccine design strategy being pursued by researchers at Scripps Research, IAVI, Fred Hutchinson Cancer Center (Fred Hutch) and the National Institutes of Health, National Institute of Allergy and Infectious Diseases (NIAID) Vaccine Research Center (VRC) shows new promise, according to data from a first-in-human clinical trial.

In a paper published in Science on December 2, 2022, the scientists reveal critical new insights into their novel vaccine strategy, which involves a stepwise approach to producing antibodies capable of targeting a wide range of HIV variants. 

“The data we are publishing in Science demonstrates for the first time that one can design a vaccine that elicits made-to-order antibodies in humans. We specified in advance certain molecular properties of the antibodies that we wanted to elicit, and the results of this trial show that our vaccine antigen consistently induced precisely those types of antibodies,” says co-senior author William Schief, PhD, a professor and immunologist at Scripps Research and executive director of vaccine design at IAVI’s Neutralizing Antibody Center, whose laboratory developed the vaccine antigen. “We believe this vaccine design strategy will be essential to make an HIV vaccine and may help the field create vaccines for other difficult pathogens.”

The Phase 1 trial, known as IAVI G001, tested the first stage in a multi-stage HIV vaccine regimen the researchers are developing. The trial results show that the vaccine had a favorable safety profile and induced the targeted response in 97% of people who were vaccinated. Importantly, the Science study also provides a detailed immunological analysis of the vaccine responses.

“HIV represents an area of dire unmet need across the world, which is what makes the findings from our Phase 1 clinical trial so encouraging,” says Mark Feinberg, MD, PhD, president and CEO of IAVI. “Through the close-knit collaboration of many different scientists, disciplines and institutions, we are that much closer to designing an effective vaccine that could help end the HIV pandemic.”  

Priming the Immune System

Broadly neutralizing antibodies (bnAbs) are a rare type of antibody that can fight and protect against many different variants of a virus—including HIV. This is why scientists have tried to develop an HIV vaccine that induces bnAbs, but thus far without success.   

The researchers in the study are using a strategy known as ‘germline targeting’ to eventually produce bnAbs that can protect against HIV. The first step of germline targeting involves stimulating the rare immune cells—known as bnAb-precursor B cells—that can eventually evolve into the cells that produce the bnAbs needed to block the virus. To accomplish this first step, the researchers designed a customized molecule—known as an immunogen—that would “prime” the immune system and elicit responses from these rare bnAb-precursor cells.

The overarching goal of the IAVI G001 trial was to determine if the vaccine had an acceptable safety profile and could induce responses from these bnAb-precursor B cells.

“Through extensive safety and tolerability monitoring during the trial, we showed the vaccine had a favorable safety profile, while still inducing the necessary target cells,” says study author Dagna Laufer, MD, vice president and head of clinical development at IAVI. “This represents a large step forward in developing an HIV vaccine that is both safe and effective.”

To determine if the targeted bnAb-precursor B cells were induced, the researchers carried out a sophisticated analytical process.

“The workflow of multidimensional immunological analyses has taken clinical trial evaluation to the next level,” says co-senior author Adrian B. McDermott, PhD, former chief of the Vaccine Immunology Program at the NIAID VRC. “In evaluating these important immunological factors, we helped show why the vaccine antigen was able to induce the targeted response in 97% of vaccine recipients.” 

IAVI G001 was sponsored by IAVI and took place at two sites: George Washington University (GWU) in Washington, D.C., and Fred Hutch in Seattle, enrolling 48 healthy adult volunteers. Participants received either a placebo or two doses of the vaccine antigen, eOD-GT8 60mer, along with an adjuvant developed by the pharmaceutical company GSK. Julie McElrath, MD, PhD, co-senior author, senior vice president and director of Fred Hutch’s Vaccine and Infectious Disease Division, and David Diemert, MD, professor of medicine at GWU School of Medicine and Health Sciences, were lead investigators at the trial sites.

A Deeper Immunological Dive

The study also carefully examined the properties of the antibodies and B cells induced by the vaccine antigen, in what Schief likens to “looking under the car hood” to understand how the immune system operated in response to the vaccine. One analysis showed that the vaccine antigen first stimulated an average of 30 to 65 different bnAb precursors per person vaccinated, and then caused those cells to multiply. This helped explain why the vaccine induced the desired response in almost all participants.

Other analyses delved into the specific mutations the bnAb-precursor B cells acquired over time and how tightly they bound to the vaccine antigen. These investigations showed that that after each dose of the vaccine, the bnAb-precursor B cells gained affinity and continued along favorable maturation pathways.

One concern for this type of vaccine approach is the notion of “competitors”—in other words, the B cells induced by the vaccine antigen that are not bnAb precursors. The researchers extensively studied the “competitor” responses, and the results were very encouraging. Although the majority of the B cells triggered by vaccination were, in fact, “competitors”, these undesired B cells could not match the binding strength of the desired bnAb precursors and did not seem to impede maturation of the bnAb-precursor responses.

“These findings were very encouraging, as they indicated that immunogen design principles we used could be applied to many different epitopes, whether for HIV or even other pathogens,” adds Schief.

With these promising data in hand spanning both safety and immune responses, the researchers will continue to iterate and design boosting immunogens that could eventually induce the desired bnAbs and provide protection against the virus. These findings also come shortly after two additional studies in Immunity published in September 2022, which helped validate the germline-targeting approach for vaccinating against HIV.

“Working together with IAVI, Scripps Research, the VRC, GWU, additional investigators at Fred Hutch and many others, this trial and additional analyses will help inform design of the remaining stages of a candidate HIV vaccine regimen—while also enabling others in the field to develop vaccine strategies for additional viruses,” says McElrath of Fred Hutch.

IAVI, Scripps Research, NIAID, the Bill & Melinda Gates Foundation and the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) through the United States Agency for International Development (USAID) are partnering with the biotechnology company Moderna to develop and test mRNA delivery of these HIV vaccine antigens. Two Phase I clinical trials are underway that build on IAVI G001, one (IAVI G002) at four sites in the U.S. and another (IAVI G003) at the Center for Family Health Research in Kigali, Rwanda, and The Aurum Institute in Tembisa, South Africa. Both are testing mRNA delivery of the eOD-GT8 60mer that was evaluated as recombinant protein in IAVI G001, and the U.S. trial includes a boost antigen designed by the Schief lab and delivered with Moderna mRNA technology. A third trial (HVTN302), at ten sites in the U.S., is testing mRNA delivery of three different stabilized HIV trimers designed in the Schief laboratory that are candidates for late-stage boosters in multi-stage vaccines aiming to induce bnAbs. Using mRNA technology could significantly accelerate the pace of HIV vaccine development as it allows for faster production of clinical trial material.

This work was supported by the Bill & Melinda Gates Foundation Collaboration for AIDS Vaccine Discovery; the IAVI Neutralizing Antibody Center; NIAID; Scripps Center for HIV/AIDS Vaccine Immunology and Immunogen Discovery and Scripps Consortium for HIV/AIDS Vaccine Development; and the Ragon Institute of MGH, MIT, and Harvard. Other collaborating organizations include Duke Human Vaccine Institute, Karolinska Institutet, and La Jolla Institute. 

Research at the IAVI Neutralizing Antibody Center that contributed to the development of the vaccine antigen eOD-GT8 60mer was also made possible by the government of the Netherlands through the Minister of Foreign Trade & Development Cooperation and through the generous support of the American people through PEPFAR through USAID. The contents are the responsibility of IAVI and Scripps Research and do not necessarily reflect the views of PEPFAR, USAID, or the United States government.

About IAVI

IAVI is a nonprofit scientific research organization dedicated to addressing urgent, unmet global health challenges including HIV and tuberculosis. Its mission is to translate scientific discoveries into affordable, globally accessible public health solutions. Read more at iavi.org.

About Scripps Research

Scripps Research is an independent, nonprofit biomedical institute ranked the most influential in the world for its impact on innovation by Nature Index. We are advancing human health through profound discoveries that address pressing medical concerns around the globe. Our drug discovery and development division, Calibr, works hand-in-hand with scientists across disciplines to bring new medicines to patients as quickly and efficiently as possible, while teams at Scripps Research Translational Institute harness genomics, digital medicine and cutting-edge informatics to understand individual health and render more effective healthcare. Scripps Research also trains the next generation of leading scientists at our Skaggs Graduate School, consistently named among the top 10 US programs for chemistry and biological sciences. Learn more at www.scripps.edu.


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US nonfarm payrolls surpass expectations to rise by 263,000; Wages up by the sharpest in 13 months

In a highly unexpected development, U.S. nonfarm payrolls outperformed market expectations and rose by 263,000 in the month of November. This was against…

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In a highly unexpected development, U.S. nonfarm payrolls outperformed market expectations and rose by 263,000 in the month of November.

This was against market estimates of a slowdown to 200,000.

The unemployment rate was also unchanged and stayed near fifty-year lows at 3.7%.

The recent ADP report missed its mark once more, having forecast a steep dip in jobs, almost halving October’s figures.

October data was revised upwards to 284,000, higher than the preliminary data for November, as compared to the initial report of 261,000 (which I covered here for Invezz).

September data which came in at a strong 315,000 has been revised sharply downwards to 269,000.

Source: TradingEconomics.com

Gains were highest in leisure and hospitality (88,000), health care (45,000), and government (42,000) which were concentrated at the local levels.

Payroll reductions were seen in retail (-32,000) and warehousing and storage (-13,000).

The November uptick is robust compared to average pre-pandemic levels, suggesting that the Fed’s tightening has not yet managed to sufficiently curb labour market strength.

Having said that, monthly additions have largely continued to cool through the second half of the year.

Earnings

Average hourly earnings, month-over-month rose sharply by 0.6% to $32.82, as against expectations of a rise of 0.3%.  This amounted to the sharpest rise in 13 months.

Similarly, on an annual basis, hourly earnings went up 5.1% as against forecasts of 4.6% and improved over October’s 4.7%.

Due to higher wages, the Fed will likely find inflationary pressures staying firmer than earlier anticipated, and price stability elusive.

Outlook

Although there have been reports of mass layoffs in technology companies and the banking sector, the labour market headline for the last month is still relatively firm.

This will be highly frustrating for policymakers who have already executed four 75bps rate hikes this year.

As per the CME FedWatch Tool, there is a 74.7% likelihood of a downshift in rate hikes to 50 bps later this month, but this report may delay discussions of a pivot.

Do check out our other economic analysis that can be found here.

The post US nonfarm payrolls surpass expectations to rise by 263,000; Wages up by the sharpest in 13 months appeared first on Invezz.

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