US jobs growth exceeds expectations in January

Wage growth fastest since recession, strengthening calls for rate rise

US job creation accelerated in January, as labour markets continued to absorb workers at a robust pace. Photograph: Getty

US job creation accelerated in January, as labour markets continued to absorb workers at a robust pace. Photograph: Getty

 

US job growth exceeded expectations in January and wages climbed at the fastest pace since the recession, strengthening the case for a rate rise in March.

Non-farm payrolls rose by 200,000 in January, topping economists’ expectations for 180,000, according to a Thomson Reuters poll. That compared with a revised 160,000 in December. The report showed strong employment growth in construction, food services and healthcare.

Average hourly earnings rose 0.3 per cent month-over-month and 2.9 per cent year-on-year signalling that the tightness in the labour market was finally pushing through to wages. The year-on-year gain was the quickest since 2009 and topped forecasts for earnings to edge up 2.7 per cent.

The unemployment rate held steady at 4.1 per cent for the fourth consecutive month, in line with expectations.

“It definitely makes it a bit more likely that the Fed will has to do more than the three hikes that they’re currently planning for this year,” said Luke Bartholomew, strategist at Aberdeen Standard Investments. “US bond markets aren’t going to like it though. Treasuries have been suffering a sharp sell-off and such strong numbers are going to pour fuel on the fire.”

Yields

Following the data, the yield on the US 10-year broke above 2.8 per cent while the yield on the more policy sensitive 2-year Treasury note hit its highest level since September 2008. Yields move inversely to prices. The yield between US 2-year and 10-year Treasuries reached the widest since mid-November, Thomson Reuters data showed.

The Federal Reserve signalled at its monetary policy meeting earlier this week that it was on course for a rate rise in March as policymakers upgraded their outlook for near-term inflation. However, with the US tax overhaul and president Trump’s planned infrastructure spending, some analysts argue that the Fed may need to tighten more aggressively this year.

A more robust labour market is expected to boost wages, and the $1.5 trillion (€1.2 trillion) tax cut from Congress is also expected to lift wages as many companies have announced bonuses and stock rewards in response to the overhaul.

– Copyright The Financial Times Limited 2018