The US employment report just released by the US Department of Labor showed the strength of the labor market despite the Federal Reserve’s monetary tightening. The growth of nonfarm payrolls or new pay slips (excluding the agricultural sector) in January was 353,000 units well above analysts’ expectations of 180,000 units. The rate of unemployment remained unchanged at 3,7%. Wall Street begins the session with a mixed performance following the jobs report. The main index, the S&P 500, recorded a modest increase of 0.14%, the Dow Jones lost 0.4%, while the technological index, the Nasdaq Composite gained 0.5% thanks to the stellar performance of Meta Platforms (+16%) following the accounts for the fourth quarter of 2023.
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US employment, the numbers in detail
Wage growth has also shown strength, with average hourly earnings rising by 10% in January 0,6%double that of economists’ estimates. On an annual basis, wages have grown 4.5%again well above the estimates of 4,1%. While the average weekly hours of work fell to 34.1, or 0.2 hours less.
“The world of work is showing a very significant sign of strength.” He writes in a note Philip DiodovichSenior Market Analyst, IG. “We believe that such strong growth in workers’ wages could lead to new inflationary pressures in the short term, increasing the possibility that the Federal Reserve may choose to promote the first rate cut only from May onwards (provided the macroeconomic data allow it). Federal Reserve members will be in no rush to cut rates.”
In detail, the new jobs in the food sector services in January they increased by 74,000 units. Other significant contributors to the overall figure include health care with 70,000 unitsil Retail (45.000), jobs in public administration (36,000), social assistance (30,000) and manufacturing (23,000).
The numbers for December have also been revised upwards compared to those initially published. In December, nonfarm payrolls increased by 333,000 unitsor an upward revision of 117.000 compared to the initial estimate. November was also revised upwards, to 182,000, which is 9,000 more than last published.
Although the nonfarm payrolls numbers have demonstrated the resilience of the US economy, they have also raised doubts about the next moves of the Federal Reserve, which just this Wednesday declared that it is not yet ready for the new phase of rate cuts.
Let us remember that the growth of the American gross domestic product (GDP) was also higher than expected in the last quarter of the year. In the fourth quarter, the US economy recorded an expansion of 3.3% on an annual basis, knocking down economists’ expectations for a recession towards the end of 2023 due to the Fed’s tightening of rates.
Fed rate cuts further and further away
In the first meeting of 2024, the Fed led by Jerome Powell decided to keep fed funds rates unchanged within the range between 5.25% and 5.5%indicating who are not yet ready to start with the rate cuts phase. The American Central Bank, like Christine Lagarde’s ECB, believes it has to wait a little longer before burying the hatchet it has been wielding for two years in its battle against inflation.
“The figures on the labor market for January highlighted extraordinarily positive numbers, excellent job creation for the previous month and strong upward revisions also for December (+117 thousand new jobs). Month-on-month and year-over-year wage growth accelerates towards high and should discourage the Federal Reserve from proceeding with a change in monetary policy in the short term, continues Diodovich. Looking at the CME Fed Watch (which measures the likelihood of interest rate actions by the FED) there is now an 80% chance that the FED will be able to keep the cost of money unchanged at the March FOMC meeting. The most likely scenario for rate reduction is the May FED meeting.”