Labour market strong in US and Europe

The US nonfarm payroll number for December proved to be a shocker. Reuters reports:

The Labor Department said 167,000 jobs were created last month and also revised up hiring for each of the two preceding months. The unemployment rate in December was 4.5 percent, unchanged from November.

Wall Street economists had forecast that only 100,000 new jobs would be created in December, so the report painted a picture of a healthier job market and potentially stronger expansion than anticipated as 2006 ended...

Some parts of the report will trouble Fed policy-makers, who have expressed concern about potential inflation. Average hourly earnings climbed 0.5 percent in December -- the largest monthly increase since a 0.6 percent jump in April -- after a 0.3 percent gain in November...

The average workweek was unchanged at 33.9 hours but overtime ticked up to an average 4.3 hours last month from 4.2 in November.

Economists acknowledged the strength in the economy that the report implies, as well as the inflation implication.

"The manufacturing side of the economy may be weak, but the rest of the economy is strong and that suggests that we're probably going to see continued good economic growth in the months ahead," said Gary Thayer, chief economist for A.G. Edwards and Sons Inc. in St. Louis...

"It's certainly going to go a long way in calming fears that a housing slowdown was taking the economy apart," said Jim Paulsen, chief investment officer for Wells Capital Management in Minneapolis...

"Without a doubt, the wage picture will be regarded as threatening by Fed hawks," said Pierre Ellis, senior economist with Decision Economics in New York.

The news from Europe yesterday was also relatively positive. Reuters reports:

The jobless rate in the 12 countries that share the euro fell last year to 7.6 percent in November, the lowest since 1993 when such measurements started, the European Union statistical agency Eurostat said on Friday. October's level was 7.7 percent...

Separately, the European Commission said its business climate indicator for the euro zone rose in December to 1.60, its highest ever, from 1.55 in November. However, managers' production expectations were less optimistic.

A separate general economic sentiment indicator fell slightly to 110.1 in December, but remained well above its long-term average, the Commission said...

Eurostat said industrial producer prices in the euro zone remained unchanged in November from the previous month, capped by falling energy costs. But they rose 4.3 percent year-on-year, boosted by rises in oil and commodities earlier in 2006, Eurostat said...

In another release on Friday, Eurostat said euro zone retail sales rose 1.3 percent in November from the same month in 2005. The indicator grew by 0.5 percent in month-on-month terms.

In contrast to the previous day's reports, the UK yesterday provided a cooler picture, Reuters reporting that take-home pay rose 2.9 percent in December, up slightly from a low of 2.6 percent in November, while data from Halifax showed that house prices fell by 1.0 percent in December.