The U.S. economy added 151,000 jobs in January according to the BLS in today’s monthly employment report. The figure was less than the 190,000 projection, while December’s number was also revised downward by 30,000 to 262,000. The December number was likely inflated due to the warm weather that month, while the lower results in January reverses some of that trend. We are inclined to average the figures, which would put the last 2 months in the +205,000 range, a solid gain given that almost 2.5 million jobs were created in 2015 and the late nature of economic cycle. Other internals in the report were generally positive, with average hourly earnings up 0.5%, its biggest gain since early 2015, while the average workweek increased 0.1 hours. The strong gain in earnings will undoubtedly be the main focus of economist and strategist over the weekend, who will contemplate if we are finally starting to see the much anticipated wage growth, given we are effectively at full employment. The unemployment rate fell to 4.9% from 5%, while the participation rate remained unchanged at 62.7%. We will point out that manufacturing added 29,000 jobs, which is a welcome respite given the series of weak manufacturing data in the past few months.
The markets are slightly tilted to higher yields following the release of the number, while stocks are also slightly weaker. Invariably, the number supports the Fed’s ongoing contention that inflation will move towards its 2% target, and at least counters the market’s belief that the Fed will be on hold for all of 2016. The USD is a little stronger after the number, but given the weakness this week (3% move since the start of the week), we are not reading too much into the 0.5% move today. We have seen volatility fall this week, mostly driven by the possible capitulation of Fed rate hikes. If this calm continues, and oil is able to consolidate in the low $30 range, we expect that investors will again need to consider a March or April rate hike. For our part, we will put June on the map as a likely rate hike point which gives the Fed time to analyze its December hike and early year credit conditions.