Non-farm payrolls increased at the slowest pace in four months in January as jobs growth fell back after the holiday season at the end of the year. The change in non-farm payrolls last month was 151k – below consensus estimates of 190k and below the 200k plus rate seen in the previous three months. There was a downward revision to last month’s figure, but for the whole of 2015, there were 85k more jobs created than initially estimated.
Strong employment growth was recorded in sectors such as retail trade, foods services and health care. Even the manufacturing sector posted a surprise increase in employment. Job losses were reported in mining as the drop in oil prices affects the level of investment in the energy industry. There were also fewer jobs in private educational services and transportation.
Looking beyond the headline figure though, it was not all doom and gloom in January’s jobs report. The unemployment rate dipped to 4.9% from 5.0% the prior month, which was the lowest since February 2008. The labor force participation rate rose slightly to 62.7%, while the underemployment rate, which includes people in employment looking for better work in addition to those out of work, was unchanged at 9.9%.
More importantly, average hourly earnings rose by 2.5% year-on-year in January, which was stronger than expectations of a 2.2% rise. As a further indication of a tightening labor market starting to put pressure on wages, December’s figure was revised higher to 2.7% from 2.5%. Average earnings is watched closely by the Federal Reserve as higher wage growth generally leads to higher inflation in the economy.
Today’s figures may be in line with a broader soft patch in the US economy towards the end of last year, but they are not weak enough to rule out a rate rise in March. Though a March hike is unlikely, the Fed will probably keep the possibility open as it assesses the incoming data. Comments this week from a Fed official, William Dudley, suggested the Fed may delay another rate hike given the downside risks from the developments in global economies and financial markets. Fed Chair Janet Yellen’s testimony next week to Congress should reveal more about the Fed’s next move.
The dollar briefly tumbled after the data as investors reacted to the worse-than-expected change in non-farm payrolls. But the currency quickly bounced back and advanced to the day’s highs as the underlying jobs picture remains strong and is unlikely to significantly change the Fed’s outlook. The greenback climbed to above 117 yen in late European session to stand at 117.22 yen. The euro lost more ground though as it fell to 1.1115 dollars, having peaked at 1.1245 just after the data. Cable dropped below the 1.45 level to stand at 1.4471 dollars.
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