The headline number is 20% below the previous 3-month average of 200,00 jobs created and the February and March figures were revised down by 19,000 jobs. While the NFP number is discouragingly below expectation of 202,000, average hourly earnings has risen by 2.5% over the year. While encouraging, hourly earnings alone will not provide enough ammunition for the FED to raise rates come June. External factors such as the slowing growth in China, Japan, Europe, and US will mix with negative interest rates to halt any hopes of increases in inflation. This toxic combination of low growth and stagnant inflation will create the next bout of volatility in equity, rates, and FX.
Just in from the US Bureau of Labor Statistics is that total nonfarm payroll employment increased by 321,000 in November, and the unemployment rate was unchanged at 5.8 percent. Job gains were widespread, led by growth in professional and business services, retail trade, health care, and manufacturing. Revisions to the September and October data were a combined +44,000, bringing the 12-month prior average to 224,000. The November monthly increase is massively over the consensus of 238,000 and will continue to bring forward expectations of a US rate rise and add further gains to the US dollar.
Mario Draghi, ECB President, spoke Friday at the Euro Banking Congress in Frankfurt and stated that the bank is ready to “step up the pressure” and expand its stimulus program if inflation does not show signs of quickly returning to the bank’s target. Do not take for granted that when the ECB President speaks, he means it.
Mr. Draghi stated that “If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases”.
Today’s release of the October labor department’s non-farm payrolls increase of 214,000 jobs and a drop from 5.9% to 5.8% in the unemployment rate is another solid showing for the US economy. Although the market was looking for a number closer to 234,000 (Bloomberg consensus), the monthly running average above 200,000 for the year is what economists will highlight. Consistent growth in the employment picture will continue to provide the backdrop for a strong dollar and should embolden US dollar bulls to add to their current medium-term positions. Short-term traders on the other hand will be more cautious on a Friday session to book profits before the weekend.
Friday’s release of the September labor departments non-farm payrolls increase of 248,000 and a drop from 6.1% to 5.9% in the unemployment rate will certainly put the wind back in the sails of US dollar bulls. Strength in the labor market will provide the FED with the confidence to guide US interest rate expectations higher as well as sooner, while the ECB and BOJ ease conditions on their struggling economies. Dollar strength in developed markets, known as G10 currencies, is broad based and gaining momentum as a result.