Dollar, Equities and Yields Spike after Strong Jobs Report

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American employers added more jobs than predicted in January and revisions to November and December brought the three month total to the largest employment gain in 17 years.

The 257,000 new positions created followed a 329,000 increase in December and 423,000 in November, both larger than previously reported, bringing the total to just over a 1 million jump in payrolls, according to the Labor Department in Washington D.C. today. The median forecast from the Bloomberg survey of economists was for 228,000 new employees. The unemployment rate rose 0.1 percent to 5.7 percent as just over 1 million people returned to the labor force either working or looking for work.

The job numbers have been good and improving for almost a year but the new positons had not resulted in wages raising much beyond inflation, until today. Average hourly earnings jumped 0.5 percent in January, the biggest monthly raise in six years, reversing December’s surprise 0.2 percent drop. The annual increase reached 2.2 percent, the highest level of compensation since July 2011 and a boon to consumers with headline inflation running at just 0.8 percent.

The dollar, Treasury yields and equities responded quickly to the report. The dollar jumped more than 150 punts absent the yen within an hour of the release and continued to just over 119.000 at writing (12:30 pm), the best level in just under a month. The euro fell 70 points on the initial reaction to 1.1383 and continued lower to 1.1320 by early afternoon. The yield on the 10-year bond   gained 11 basis points to 1.93 percent, topping a fierce five day run that has added 30 point to its return. Stocks started modestly stronger, adding 25 points initially, slipped back to the opening level, gained strength as the session continued, but then turned lower, just 27 points to 17,911 by early afternoon.

The continuing strong job growth, averaging 337,000 over the last three months, even in the context of economic growth that faded to 2.6 percent annually in the fourth quarter from 5.0 percent in the third, will keep the spotlight on the Federal Reserve and it prospective first Fed Funds rate increase in eight years. The hike is expected by most observers sometime in June or shortly thereafter.

The private economy hired 267,000 new workers in December, added 320,000 in December and 414,000 in November. That was the best three month total since the end of 1997.

Manufacturing payrolls added 22, 00 worked in December, almost double the 12,000 estimate. That also caps a healthy period with an average of 31,000 new factory positions secured per month. Hiring in the sector may slow in the month ahead as export sales wane under the impact of the stronger dollar.

The Labor Department uses two separate surveys to gauge the employment market in the United States. The ‘establishment survey’ measures job growth among existing firms and produces the non-farm payroll numbers. A second poll, the ‘household survey’ asks individuals if they have jobs or have looked for work in the past month, this casing results in the unemployment rate.

This ‘household’ poll showed about 1.05 million people had entered the labor force in December and 759,000 found work, far more than the 250,000 forecast and the largest surge since November 2013.

The so-called ‘underemployment’ or U-6 rate which includes people who have looked for work in the past year or are working part-time and want fulltime employment rose 0.1 percent to 11.3 percent.

Economists expect both unemployment rates to continue to rise as the millions of workers who had given up seeking employment are drawn back to the labor market by the importing prospects of finding job.

The labor force participation rate, which tracks the share of working-age people in the labor force, increased to 62.9 percent but remains near it generational low of 62.7 percent in December.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

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