The labour market tightened significantly in 2015, which was the main reason why the Fed raised the target rate in December, as PCE core inflation is still subdued. Since then there has been much uncertainty about the true state of the US economy, as the financial turmoil in the beginning of 2016 partly reflects growth concerns due to monetary tightening and weak data releases. The big question is when Fed will increase the target range next time. At the FOMC meeting on 27 January the statement was relatively dovish, which supports our view that Fed will skip March as well, see also Less 'confident' Fed likely to stay on hold in March as well , 27 January. Markets are pricing less than one hike this year. The jobs report will be very important as the strong development in the labour market is one of the few bright spots left in the Fed's 'chart book'. A weak jobs report could be a game changer for the Fed and could also weigh significantly on market sentiment. A strong jobs report would calm the markets and the Fed as further job growth would indicate a solid underlying growth trend in the US economy.
We estimate non-farm payrolls increased 200,000 in January, which is in line with the recent trend growth (consensus is 190,000). We expect the unemployment rate was unchanged at 5.0%. Average hourly earnings (AHE) is estimated to have grown 2.2 % y/y, which is in line with consensus.
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