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US Payrolls Rise 227k in January, Wage Growth Slows

The US labor market kicked off 2017 on a firm footing adding 227k jobs during the first month of the year. The data, released by the Labor Department was upbeat as it raised the prospects of another solid pace of job gains amid a burst of optimism among businesses under the new Trump administration.

The job gains came from the retail, construction, and financial services, while federal jobs both state and local government jobs fell by 10k. The jobs for November and December were revised down by a combined 39k.

U.S. Nonfarm payrolls: 227k, January 2017 (Source: Tradingeconomics, BLS)

Headline payrolls increase, wage growth slows

U.S. Average hourly earnings 0.1%, January 2017 (Source: Tradingeconomics, BLS)

The US unemployment rate jumped to 4.8% from 4.7% in January while average hourly earnings rose by $0.03 to $26 bring the annual pace of wage growth to 2.5%, down from December’s 2.9% record increase. Economists were expecting the headline print to show 175k jobs while expecting wages to maintain December’s yearly gain of 2.9% after more than 20 states raised minimum wage last month. Wage growth for the previous month was revised down from 0.4% to 0.2%.

Speaking after the release, Mohamed El-Erian from Allianz SE said that the lackluster growth in wages could keep the Fed from hiking rates in March. “The figure on pay is disappointing,” El-Erian told Bloomberg adding that it jobs report reduced the chances of a March rate hike. “It puts even more focus on structural measures to enhance wage growth,” he said.

The US labor market continues to grow steadily, with the unemployment rate lingering close to the Fed’s full employment mandate. However, economists are expecting job growth pace to stabilize around 160k down from 187k average page of jobs that were added in 2016.

The labor force participation rate, which shows the share of workers with jobs or looking for jobs rose to 62.9% in January, up from 62.7% previously. Despite the uptick in the labor force participation rate, it remains near the lowest levels.

The Friday’s payrolls report comes after earlier in the week, ADP/Moody’s Analytics released the private payrolls data showed that the US economy added 246k jobs higher than expected.

The January payrolls report was a mixed bag as the headline print showed a 200k+ jobs but wages which have gained importance over the past couple of releases has remained weaker. Job gains were seen among all of the key industries, excluding government jobs and the aggregate hours worked also rose for a second straight month. The average duration of employment also decreased. The data prompted some to deduce that there was still a considerable slack left in the labor markets, this in effect could be what the FOMC doves are likely to focus on to slow the pace of tightening of rate hikes. The pace of gains in the payrolls also suggests that the economy has some more room to run before strong inflationary pressures that the Fed is looking for is more entrenched.
Fed’s March rate hike less likely

Ian Shepherdson, from Pantheon Macroeconomics, said, “January saw big increases in minimum wages in many states, enough to contribute over 0.2% to AHE, and January was relatively short, with only 20 working days; that tends to be strongly associated with above-trend AHE.” Shepherdson, however, does not completely rule off a March rate hike noting that the January data only makes it “less likely” for the Fed to hike rates.

If the Fed misses the boat in March, the three rate hikes that it forecast in December 2016’s meeting could mean a faster pace of tightening to come towards the second half of the year.

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Tuesday, 07 Feb, 2017 / 8:59

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