- The US economy added 227K jobs in January, up from 157K in December
- The unemployment rate edged up to to 4.8% from 4.7%
- Despite robust hiring, there was some cooling down in wage growth, as it fell to 2.5% after a strong increase of 2.9% yoy the previous month
- With the labour market tightening, wage growth is likely to reaccelerate
- This means that a stepping-up of the pace of Fed rate hikes is likely, but resuming from the middle of 2017
Nonfarm payrolls move above last year’s average, while wage growth slows
The labour market continued to show improvement in job gains, adding another 227K jobs, up from 157K and above the 186K monthly average of the previous year. The December gain was revised slightly up to 157K. The unemployment rate edged up to 4.8% from 4.7%. Meanwhile, the labour force participation rate moved up to 62.9% from 62.7%. However, the increase in both discouraged workers and involuntary part-timers in the broad U-6 underemployment rate to 9.4% from 9.2%, suggests that underemployment is still failing to show a steady recovery. One of the more notable aspects of the report was the softness of wage growth. January’s monthly wage growth, increased only 0.1% mom, after increasing 0.4% the previous month, while the year-to-year increase was only 2.5% down from 2.9%. This was partly payback since wage growth in December was the fastest in seven years. With the labour market tightening, wage growth is likely to reaccelerate
Government employment likely to continue to decline
In the details, the government sector reduced 10K jobs in January. President Trump’s orders to freeze Federal civilian hiring could be a modest negative for payroll growth in the future. Although the share of Federal employees has been declining, they account for 1.6% of overall employment. Meanwhile, job gains in the manufacturing sector remained soft despite the increasing improvement in manufacturing surveys. Retail employment was strong (+46K), followed by business services (+39K).
Impact on the Fed
The report has somewhat mixed signals for the Fed. Although job gains are welcome, weaker wage growth and higher underemployment, suggests that the Fed will likely wait a few more months before continuing with the rate hike cycle. We expect the Fed to resume rate hikes in June this year, followed by two more rate hikes in September and December.