US Employment Report As Good As It Gets

The US economy added 321,000 jobs in November and revisions to previous months was a net 44,000 positive. This leaves monthly job growth at an average of 258,000 over the past six months – the strongest six month trend in the current recovery.

The strength was broad based although there are some indications that hiring for the holiday season, which is likely to be temporary, is behind some of the rise. Retail trade added 50,000 up from 34,000 last month and professional business services 86,000 up from 52,000 in October. However, construction (+20,000) and manufacturing (+28,000) employment increased as well.

Average hourly earnings were up 0.4% m/m, so a tentative sign that wage growth is picking up from the subdued pace over the past months.

The unemployment rate kept unchanged as employment in the household survey was only 4,0000 but this is merely a correction back to the trend in payrolls following the massive 683,000 increase last month. There were 119,000 persons entering the labour force and the participation rate held steady at 62.8.

The continued improvement in the labour market should keep the Fed on track to deliver the first rate hike in June 2015 and this is likely to be reflected in the tone of the FOMC statement released December 17. Whether they will remove the “considerable time” phrase from the statement already in December is a close call, but after the addition of the data dependency wording in October, stating that faster progress would bring earlier hikes, a change seems less urgent.

The US money market curve has steepened significantly this week, but there is still room for steeper money market curve if the Fed is to hike June-15. Rates are going to move higher during 2015 in the US, but mostly in the short end as Fed hikes. Meanwhile longer term yields are held down by the global liquidity boost and high demand from regulation. Higher short end rates and global central bank divergence will continue to support the USD. We expect the USD to perform in the coming months - especially against EUR and JPY.