Rob Carnell, Chief International Economist at ING, notes that the US labour report was its usual mixed bag – but we think the release is dominated by the soft wages component.
“The recent creep forward in Fed funds expectations will push back again after this, most likely taking the dollar with it, and drag front end yields lower.
Despite a decent +242K payrolls headline, with upwards revisions to the January data, and a reversal in manufacturing job growth (-16K after +23K last month), this was not the fantastic report that we might have hoped for. On the plus side, the household survey also posted another big gain (+530K) which means that something like 1.6 million jobs have been created in the last three months - according to that measure of job creation. This looked eye-wateringly strong last month, and our sense of incredulity has grown since then. Surely this is due a reversal soon? But until then, the unemployment rate remains 4.9%, though the hawks on the Federal Reserve will be comforted by the fall in the “underemployment rate” (U-6 measure) which dropped 0.2ppt to 9.7%.
For us, the biggest disappointment, and what we think will dominate the release, was the fall back in wages. Against expectations for a 0.2%mom rise (and our +0.3% expectation based on reports of stronger wages growth from the Beige book), average hourly wages fell 0.1%mom, taking the annual rate down from 2.5%YoY, to only 2.2%YoY.
A March rate hike remains off the table in our view, following this release. And the mixed nature of this report makes it unclear what the Federal Reserve should in fact be doing longer term. In the end, after attempting to digest this release, we think we will need to see another month or two of data to get a sensible idea of just what is happening to the US labour market. For now, this is confusing us, and we suspect, it will confuse the Federal Reserve too.”
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