Financial media is fond of calling each month's US jobs release as "THE MOST IMPORTANT NFP REPORT OF ALL TIME". But this time around, even the pundits struggled to impart too much significance to today's release. After all, the earliest that the Federal Reserve could possibly raise interest rates is in mid-March and traders will see another, more timely jobs report at the start of next month. Going out to June, when traders currently think the Fed is most likely to hike, there will be a four more NFP releases after today's.
Nonetheless, traders gathered in their ritualistic way, glued to their Bloomberg terminals and televisions, waiting for the latest update on the US labor market. For once, the jobs report seemed to paint a clear picture: the labor market continues to improve gradually, but there is more slack than some Fed hawks had hoped.
The Numbers
On a headline basis, the 227k reading in net new jobs came in well above expectations of 175k, but the details of the report were more mixed. Namely, average hourly earnings rose at only a 2.5% rate year-over-year, below both economists' expectations and last month's reading of 2.7%. That negative news on the wage front was partially offset by an increase in the average hourly workweek to 34.4 hours. It's also worth noting that the labor force participation rate rose by 0.2% to 62.9%.
As always, we caution against reading too much into a number that's extremely volatile on a month-to-month basis, to say nothing of the large revisions that can make the initial release misleading. That said, the fact that the US economy was able to create more jobs than expected, without a commensurate rise in wages, suggests that we're further from "full employment" than many bulls were hoping. At the margin, today's report decreases the likelihood of a rate hike from the Federal Reserve in March and June.
This view is reflected in the Fed Funds futures market, where the market-implied probability of a rate hike fell in both March (from 18% pre-NFP to 9% as of writing) and June (from 70% to 63%). Viewed in this light, it's no surprise that the US dollar is falling and equities caught a bid ahead of the opening bell.
At least at first glance, the same "lower-for-longer" theme on US interest rates remains intact, as it has for the past half decade.