On Friday, the Labor Department announced that 200,000 jobs were added into the economy in December. Beating analysts' estimates of 150,000 gain, this dropped the unemployment rate to 8.5%, the lowest level since February 2009. Overall for 2011, the economy added 1.6 million jobs, the most in five years. However, the US stock markets didn't respond mildly to these news. Dow and S&P 500 posted marginal losses.
Despite the latest signs that the economy is improving, employment still remains 6.1 million below the levels before the recent recession. Even with December's rate of growth, it will still take over two years to recoup such amounts. Moreover, seasonal variability accounted for much of the growth seen in December. Contribution to the growth were construction jobs, boosted by mild weather. Messenger and retail industries also added significant number of jobs for the holiday shopping season. As colder months arrive and the holiday season wanes, growth in these sector may slow down.
Furthermore, European situations continue to worry investors globally. Unemployment in the 17 nations that use the euro is at 10.3%. Italy's 10-year bond yield climbed to 7.09%, above the 7% threshold that impelled bailouts in Portugal and Ireland. The Spanish levels are dangerously resting at over 5.6%. The euro fell to $1.2696, the lowest since September 2010. The yield in US Treasury 10-year note fell to 1.96%. At first, this may contradict the general rule that as interest rates increase in a country, money and investment will flow into that country and appreciate its currency. However, dollar is appreciating against the euro despite decreasing interest rates in US and increasing rates in Europe. In this scenario, it can be explained that higher yield in Italian bonds are due to greater risk. Investors instead choose to put money in the low-risk US Treasury bonds. As the demand for US Treasury bonds increases, the bond yield falls.
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