Time to wrap up for the week - here are today’s main business stories:

We’ll be back on Monday. Have a lovely weekend. GW

European stock markets have ended the day lower, although the UK bucked the trend.

London’s FTSE 100 index of blue-chip shares has jumped 0.5% today to end at 7485, up 34 points, towards this week’s 22-month highs.

Mining companies and banks led the rally, with financial stocks benefiting from expectations of higher interest rates.

Germany’s DAX fell 0.65%, though, while France’s CAC lost 0.4%, as jitters about a looming rise in US interest rates weighed on investors.

At the White House, president Joe Biden is explaining that it’s a ‘historic day’ for the US economic recovery, and that America is back to work.

Biden says the fall in the unemployment rate, to 3.9% in December, is the sharpest one year drop in unemployment in United States history, and happened much faster than experts predicted.

The 6.4m jobs added in 2021 is more than any other president has managed ever in a calendar year, Biden points out [although hiring in December was weaker than hoped].

Biden argues that this record job creation shows his economic plan is working, and that the American Rescue Plan got people vaccinated, back on their feet and back to work.

Biden also flags that America is the only leading economy that’s stronger than before the pandemic.

(US GDP is now larger than its pre-Covid levels, while other G7 nations, such as the UK, are still smaller than before the pandemic).

President Biden points out that dire warnings that supply chain issues would lead to a crisis during the 2021 holidays weren’t fulfulled, after the White House took action:

“The Grinch did not steal Christmas ... nor any votes.”

Biden also insists he will keep pushing for healthy competition, warning that capitalism without competition is exploitation.

And in an echo of president Trump, Biden points out that the US stock market has gained around 20% in his first year [the S&P 500 index jumped over 26% during 2021]

Our US Politics blog are covering all the political action:

The US economy ended the year with disappointing jobs growth figures for December, adding just 199,000 workers to the non-farming labor force.

Economists had been expecting more than double that number – 422,000 – suggesting that the US economy was improving, but erratically, as worker shortages troubled employers even before the Omicron coronavirus variant arrived, threatening another recovery stall.

Figures released by the Bureau of Labor Statistics showed that the US unemployment rate fell to 3.9%, and that job creation was highest in leisure and hospitality, a key recovery sector, which added 53,000. Professional and business services contributed 43,000 while manufacturing added 26,000.

Michael Pearce, senior US economist at Capital Economics, noted:

“The muted 199,000 gain in non-farm payrolls and the more muted increase in labor force participation suggest that worker shortages were becoming a bigger restraint on employment growth, even before the Omicron surge in infections, which could knock hundreds of thousands off payrolls in January,

But the slower-than-anticipated pace of hiring is offset by the record number of positions in 2021 and jobless claims registered at 207,000 last week close to the lowest level in 50 years.

But the latest numbers suggested continued uncertainty over the course of a US economy that had begun rebounding strongly between waves of Covid disruption.

Stocks are now heading lower in New York, as investors fret that US interest rates could rise soon.

The tech-focused Nasdaq Composite index has now dropped by 1.2%, adding to losses earlier this week.

Craig Erlam, senior market analyst at OANDA, says today’s jobs report could spur the Federal Reserve to raise interest rates or unwind its asset-purchase programme, even though fewer jobs were created in December than forecast.

Stock markets are back in the red on the final day of the week as investors continue to fret about the prospect of higher interest rates this year.

Whether this is just an exhaustion of the omicron relief trade, a case of January blues that will quickly be forgotten once earnings season gets underway next week, or something more significant will only become clear later this month.

But the data isn’t offering investors much chance for relief and the jobs report is just another example of that. The headline NFP miss was never going to generate too much relief as signs of tightness elsewhere is always going to take priority. That said, investors may feel they’ve dodged a bullet as the million new jobs that some predicted could have further convinced policymakers that the US is close to, or at, full employment.

But the average earnings numbers, higher participation, and drop in the unemployment rate will surely overshadow the NFP number as far as the central bank is concerned. Higher participation is encouraging, as the slow recovery on this front is a major contributor to the tight labour market. But wages rising faster than expected will add to the prolonged inflationary pressures which will concern the Fed.

America has racked up its biggest annual increase in jobs on record, points out Heather Long of the Washington Post:

Average hourly earnings rose by 0.6% in December, higher than forecast, and up from an upwardly-revised 0.4% in November.

They rose by 19 cents to $31.31. Over the past 12 months, average hourly earnings have increased by 4.7% (below inflation, which hit 6.8% in November).

Newsflash: America’s economy added just 199,000 new jobs in December, much weaker than expected.

But...the US unemployment rate has dropped to 3.9%, though, from 4.2% in November.

November’s NFP has been revised up, to show that 249k jobs were created (up from 210,000 initially), while October’s has been lifted to 648k, from 546k.

Inflation across the euro area has jumped again, intensifying the pressure on the European Central Bank as prices continue to surge ahead of its target.

Consumer prices in the single currency region rose by 5% in the year to December, up from 4.9% in November - which was already the highest since the euro was introduced.

Energy prices drove the cost of living higher, rising by 26% over the last year due to the rise in oil and the surge in gas prices.

But price pressures were broader-based too - with food, alcohol & tobacco prices rising by 3.2%, non-energy industrial goods by 2.9%, and services by 2.4%.

Firms have been passing on their higher costs to consumers, with supply chain bottlenecks pushing up raw material costs and restricting product availability.

The ECB’s goal is to keep inflation at 2% in the medium term, and predicts that CPI will fall below 2% by 2023.

Last month the ECB decided to end its pandemic bond-buying stimulus programme in March, but it will maintain another asset-purchase programme to spur growth, and kept interest rates at 0%.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, says the supply chain crisis facing builders may have abated last month, despite the growth slowdown:

“Though the overall index moved down slightly in December there was light at the end of the tunnel for builders in terms of the strongest order numbers since August, reduced pressure on business costs and some improved delivery times for essential materials.

“Residential building has powered on every month since June 2020 and was the best performing category in the last month of 2021. Commercial building struggled to gain a stronger footing in a weakened UK economy and civil engineering activity fell back into contraction.

“Though supply constraints were still hiking up prices, inflation was the lowest since March as materials production carried on apace reducing supply restrictions. It was shipping delays and haulage shortages that remained the significant gripes in the industry as over a third of supply chain managers faced longer wait times.

Though this was an improvement on the previous month and the best since November 2020, it was still a factor affecting builders’ forecasts for 2022 as business optimism fell to the joint-lowest for almost a year.”

Joe Sullivan, partner at MHA, says worker shortages are the top challenge for builders:

“The availability of labour is now the number one issue within the UK construction sector, with wages continuing to rise. Staff mobility is high as people look for the best pay packets, causing further disruption. In addition, the spread of the Covid-19 Omicron variant has inhibited progress on building sites, dampening output and making planning even more difficult.

Max Jones, director in Lloyds Bank’s infrastructure and construction team, agrees that that the surge in Covid-19 infections could hit builders:

“While Omicron is front of mind for contractors, it’s not the threat of a full lockdown, which looks peripheral, but a surge in cases that could halt work on projects that’s the worry. If that combines with a weather-induced slowdown it could make for a volatile start to the new year.

Elsewhere skills shortages remain and many are struggling to fill the gaps in capacity this is throwing up, while boardrooms are making plans for a full year of materials inflation.

Growth at UK building firms fell to a three-month low in December as Omicron disruption hit the sector.

But there are signs that the supply chain crisis is easing, with fewer firms reporting disruption to deliveries.

Data firm IHS Markit’s construction PMI, which tracks activity in the sector, dropped to 54.3 in December, down from 55.5 in November, showing the slowest growth since September.

House-building accelerated, but commercial property growth slowed and the civil engineering sector contracted.

Some survey respondents noted that tighter pandemic restrictions and rising COVID-19 cases had acted as a brake on recovery, especially in the commercial sector.

On a more positive note, the number of construction firms reporting supplier delays dropped from 47% in November to 34% in December, with 5% of firms reporting shorter lead times among vendors.

That could help ease the cost pressure hitting UK builders, with input price inflation slowing to its lowest in nine months.

Tim Moore, director at IHS Markit, says:

“UK construction companies ended last year on a slightly weaker footing as renewed pandemic restrictions held back the recovery, especially in commercial work and civil engineering.

Some firms commented on disruption from rising COVID-19 cases, while others noted a lack of new work to sustain the rapid growth rates seen earlier in 2021.

“The worst phase of supplier delays seems to have passed as the availability of construction products and materials continued to turn a corner in December. While suppliers to the construction sector have caught up on backlogged work and boosted capacity, there were still widespread reports citing unresolved transportation issues and driver shortages.

Input cost inflation moved down another notch in December, helped by the alleviation of some supply chain pressures. The latest rise in purchasing prices was far slower than the 24-year peak seen last June.”

UK house prices rose by 9.8% last year, the fastest rate since 2007, but the boom is predicted to end this year as household finances come under increasing pressure, according to Halifax.

The price of the average UK home hit a record high of £276,091 in December, up more than £24,000 over the year, the biggest annual increase since 2003.

Halifax said the housing market “defied expectations” last year, ending with a 3.5% increase in prices in December, a level not seen since the end of 2006.

Russell Galley, the managing director of Halifax, said

“In 2021 we saw the average house price reach new record highs on eight occasions despite the UK being subject to lockdown for much of the first six months of the year,”

Factors that have helped fuel the homebuying boom include the government’s stamp duty holiday, which came to an end in England and Northern Ireland in September after finishing earlier in Scotland and Wales, historically low interest rates and the “race for space” sparked by the pandemic-fuelled shift to remote and flexible working.

Halifax expects UK house price growth to slow considerably compared with the red-hot rates of the past two years of the pandemic.

“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably,” Galley said.

“Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace.”

The bosses of Britain’s biggest companies have just earned more money in 2022 than the average UK worker will earn in the entire year, according to analysis of the vast gap in pay between FTSE 100 chief executives and everyone else.

The High Pay Centre, a thinktank that campaigns for fairer pay for workers, said that by 9am on 7 January, the fourth working day of the year, a FTSE 100 chief executive will have been paid more on an hourly basis than the UK worker’s annual salary, based on median average remuneration figures for both groups.

The country’s biggest unions said it was disgraceful that “greedy executives are taking home millions while ordinary workers face yet another year of pay squeezes”, and they demanded that firms be forced to appoint a frontline worker to executive pay committees.

FTSE 100 chief executives were paid £2.7m on average in 2020 (the latest full-year figures available), which works out at 86 times the £31,285 average salary for full-time UK workers, according to Office for National Statistics figures.

More here:

Industrial production in the eurozone’s two largest economies stumbled in November, new data this morning shows.

Industrial output in Germany dipped by 0.2% during the month, missing forecasts of a 1% gain, as supply chain frictions continued to hit German industry.

Carsten Brzeski, ING’s chief economist for Germany, says German industrial revival in October proved to be short-lived.

He also warns that the latest wave of Covid-19 across the globe means things for German industry will get worse before they get “structurally and sustainably” better.

The fourth wave of the pandemic and Omicron should send industrial activity back into hibernation.

German industry remains in the stranglehold of global supply chain frictions. It is not only semiconductors but all kinds of input goods, ranging from bottom brackets for bikes to magnesium needed in automotive and aircraft construction.

Supply chain frictions are not only leaving their mark on actual production but have started to spread and to undermine production prospects as reflected by dropping orders and weakening production expectations. Looking ahead, it will take until spring next year before German industry is back on a fully sustainable recovery path.

In France, industrial production dropped by 0.4%, also weaker than expected,

Irish drinks producer C&C Group suffered a hit to sales last month as the Omicron variant hit demand.

C&C, which produces Bulmers and Magners cider, and Tennent’s lager, says sales in December missed expectations.

New restrictions imposed in the UK and Ireland in December had a significant impact on its ‘on-trade business’ which sells drinks to pubs, bars and restaurants.

C&C told the City that:

In the month of December, the key festive trading period, C&C traded directly with 81% of on-trade outlets vs FY2020, delivering 64% of the volume against an expectation of 90% and 90% respectively.

While December’s performance was consequently behind expectation, the Group generated a modest profit for the month.

Before Omicron stuck, C&C was seeing a recovery. Trading in September to November was modestly ahead of expectation, thanks to customers returning to hospitality venues.

C&C also lifted its prices “to manage inflationary cost pressures”.

Shares have dropped almost 3% in early trading.

After a strong 2021, the UK housing market faces an uncertain 2022, says Jan Crosby, head of infrastructure, building and construction at KPMG UK:

The stamp duty holiday that partially fuelled last year’s increased demand is long gone, but concerns around house price inflation, ongoing supply chain issues and the impact of the Omicron variant are creating an unwelcome climate of uncertainty.

“Hopefully these pressures on the market ease sooner rather than later, although the price rises seen last year will continue to impede first-time buyers in particular.

“At some point the market has to moderate, either through an increase in supply or – perhaps more likely – a drop-off in the pandemic-era trend of people looking to move as what they want from their home has changed.”

Martin Beck, chief economic advisor to the EY ITEM Club, reckons the markets will cool this year, but prices won’t fall:

The end of the stamp duty holiday has been followed by signs of the housing market returning to more normal levels of activity. And the fundamentals facing the market are looking less supportive of continued growth in prices. Higher inflation and tax rises will affect households’ spending power and mortgage rates are likely to rise in response to the Bank of England’s decision to increase the policy rate. Moreover, pandemic-driven changes in housing preferences, and the resulting boost to demand, are likely to fade over time.

But mortgage rates will be increasing from a very low level. Unemployment is low and households, overall, are still sitting on substantial unplanned savings accumulated during the pandemic. So, while the EY ITEM Club expects house price growth to decelerate significantly this year, an outright fall in prices is unlikely.

North London estate agent Jeremy Leaf reports that a shortages of houses for sale is holding the market back:

‘Buyers are clearly still emerging following their short hibernation to carry on where they left off, quickly snapping up new properties which come onto the market. Most are choosing to forget worries about rising inflation, interest rates and taxes to say nothing of Omicron.

‘However, lack of stock is reducing the number of transactions and supporting prices. Market appraisals and new instructions are improving but not quick enough yet.

’Stretched affordability means that prices are unlikely to rise as quickly as they did for a large part of 2021 but prices of family houses in particular will continue to do well.’

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

UK house prices have posted their strongest year since the financial crisis, but a slowdown may be looming.

Monthly figures just released by mortgage lender Halifax show that UK house prices jumped 9.8% during 2021, hitting record highs.

That’s the sharpest annual increase since July 2007, Halifax says, as demand for larger homes, record low interest rates, and the stamp duty tax break drove up prices.

House prices rose by 1.1% in December alone, the sixth monthly rise in a row, as the market ended the year strongly.

But the market may cool during 2022, Halifax argues, as the cost of living squeeze and higher interest rates hit household budgets.

Halifax reports that:

• Average UK property price hits a new record high of £276,091
• House prices have increased by over £24,500 in 2021 -- the highest year-on-year cash rise since March 2003
• House price growth expected to slow in 2022

Russell Galley, managing director at Halifax, explains:

“The housing market defied expectations in 2021, with quarterly growth reaching 3.5% in December, a level not seen since November 2006. In 2021 we saw the average house price reach new record highs on eight occasions, despite the UK being subject to ‘lockdown’ for much of the first six months of the year.

“The lack of spending opportunities afforded to people while restrictions were in place helped boost household cash reserves. This factor, alongside the Stamp Duty holiday and the race for space as a result of homeworking, will have encouraged buyers to bring forward home purchases that may have been planned for this year. The extension of the Government’s job and income support schemes also supported the labour market and may have given some households the confidence to proceed with purchases.

“A lack of available homes for sale, and historically low mortgage rates, have also helped drive annual house price inflation to 9.8%, its highest level since July 2007.

“Looking ahead, the prospect that interest rates may rise further this year to tackle rising inflation, and increasing pressures on household budgets, suggests house price growth will slow considerably. Our expectation is that house prices will maintain their current strong levels but that growth relative to the last two years will be at a slower pace. However, there are many variables which could push house prices either way, depending on how the pandemic continues to impact the economic environment.”

Last month, Halifax reported that the “race for space” between homebuyers has pushed up prices in some UK towns by about a fifth this year, with Taunton topping a list of areas with the biggest increases.

Also coming up today,

Markets are bracing for the latest US non-farm payroll report, which is expected to show that around 400,000 new jobs were created in America last month.

A strong reading, and a jump in earnings, could increase the chances the US Federal Reserve raises interest rates as soon as March -- a prospect that knocked markets this week.

Kyle Rodda of IG explains:

Today’s trade in global markets will be about US Non-Farm Payrolls data, the anticipation of which has probably exacerbated this increased uncertainty around US Fed policy this week. Forecasters are tipping a solid 426k jobs gain, a drop in the unemployment to 4.1%, and – crucially – a rise in average hourly earnings of 0.4%.

It’s that final detail that may prove most pertinent for market participants, as they remain wary of signs of an emerging wage-price spiral. If the wages number does come in hotter than expected, then it may add to those fears of a more aggressive Fed, and add to this recent bout of elevated volatility and weakness in equities.

We also get December’s eurozone inflation report - in November, inflation across the 19-member eurozone soared to 4.9%. The latest construction PMI report will show how UK builders fared last month.

The agenda

• 7am GMT: Halifax UK house price survey
• 9.30am GMT: UK construction PMI
• 10am GMT: Eurozone inflation report for December
• 1.30pm GMT: US non-farm payroll jobs report for December