January 9, 2015 / 1:45 PM / in 4 years

Instant View: U.S. job growth higher than expected, but wages fall

(Reuters) - U.S. job growth increased briskly in December, further strengthening the economy’s fundamentals and opening the door wider to an interest rate increase from the Federal Reserve this year despite a gloomy world economy.

KEY POINTS:

* Nonfarm payrolls increased 252,000 last month after a revised 353,000 jump in November, the Labor Department said on Friday. The unemployment rate fell 0.2 percentage point to a 6-1/2 year low of 5.6 percent. However, some of the decline reflected people leaving the labor force.

* December marked the 11th straight month of payroll increases above 200,000, the longest stretch since 1994. With October’s count also revised higher, the economy created 50,000 more jobs than previously reported in the prior two months.

* Economists polled by Reuters had expected employment to increase 240,000 in December and the unemployment rate to fall one-tenth of a percentage point to 5.7 percent.

* But a five cent drop in average hourly earnings after rising six cents in November, took some shine off the report.

COMMENTS:

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST AT BNP PARIBAS IN NEW YORK:

“I think a net moderate positive for the dollar but I don’t expect a big gain today because of the weaker average hourly earnings details. Also, with markets already aggressively positioned in the dollar, I don’t think people will take an even more aggressive position on the back of the report ahead of the weekend.

“The initial reaction was positive but I think some of the details were less good for the dollar in terms of the earnings data being quite soft. But overall this report is fairly consistent with what the Fed has signaled so far, which is the labor market slack is diminishing but there are few wage pressures so the Fed is in no rush to hike and can comfortably wait until the middle of the year before doing so.”

JIM VOGEL, AN INTEREST RATE STRATEGIST AT FTN FINANCIAL IN MEMPHIS, TENNESSEE:

“The big reaction so far is we are getting more curve steepening. People are really scratching their heads over the downward revision in hourly earnings. The idea is, and it’s widely held, that lower oil prices help the consumer by increasing the net pocketbook savings. But on the other hand, if employers hold back on raising wages because oil prices are falling, we are pulling a big thread out of the fabric we were expecting in 2015.”

KATE WARNE, INVESTMENT STRATEGIST AT EDWARD JONES IN ST. LOUIS:

“It’s a good number, obviously a little better than expected, upward revisions to the previous two months. It continues to say the job market is improving.

“The thing that was a bit of a surprise was that we didn’t see wage gains and the November stronger increase in wages was revised down. We are once again looking at a situation where people are getting hired but we are not seeing the wage increases the Fed would like to see. That keeps the Fed on hold, inflation is low, oil prices are low, the job market is improving but not in all the ways the Fed is looking for.

“What we are seeing is a tug of war between the worries about slowing global growth and whether European policymakers can boost growth there. So there are still worries about the rest of the world but the perception the U.S. is far enough away and a big enough island that the waves of worry from the rest of the world don’t matter so much is reinforced by today’s jobs report.”

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST & ECONOMIST, WELLS CAPITAL MANAGEMENT IN MINNEAPOLIS:

“I think overall this is a really really good number for economic growth. Job creation here is pretty phenomenal. We also got another big decline in the unemployment rate.

“Its weird you get such a strong job report and a decline in wages. I think its a kind of weird technical thing. You might find its some weird sector.

“It might be you’re only creating low paying jobs. The markets I think are a little confused as to how to look at it. Its hard to know how to look at it. What this says is we had good growth without any inflationary consequences. That’s good for stocks. That sounds like the late 1990s.”

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER AT ALLIANZ, NEWPORT BEACH, CALIF.:

“With the exception of disappointing wage growth, the U.S. delivered another month of strong job creation in December, capping an impressive employment year. Given the entirety of the labor market picture, it is a matter of time until wages pick up.” 

CRAIG DISMUKE, CHIEF ECONOMIST, VINING SPARKS, MEMPHIS, TENNESSEE:

“It’s a mixed bag. Net payroll growth is pretty strong, but the household survey is where you see some concerns. Participation rate dropped. The real issue is average hourly earnings which was down and the previous month was revised lower. That’s the most disappointing part of the report. We are still not seeing wage growth in the household survey. We are only a ten of a percentage point away in the unemployment rate from the Fed’s threshold to begin raising rates.

“So they will raise rates at some point this year based on their summary of economic projections. It is immaterial which month it happens. Because of the drop in wage growth and headline inflation likely running at zero or going negative in the coming months, they could be as patient as possible.”

TOM PORCELLI, CHIEF US ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

“We were looking for a lower number for technical reasons, we were expecting that there was going to be some retail holiday hiring payback. For a month that was technically challenged, you have to be pleasantly surprised by this overall outcome. With the headwinds that should have been retail, this is a really good outcome from a hiring perspective.”

PETER CECCHINI, MANAGING DIRECTOR AND CHIEF MARKET STRATEGIST AT CANTOR FITZGERALD IN NEW YORK:

“The report was fine. It indicates slow improvement, slow but steady improvement, in the job market. The average hourly earnings had a revision for the prior month, so the gain we had there was wiped clean. The weakness there this month is not welcome. The key takeaway is about the quality of jobs being created, and that doesn’t look up to snuff. We’re not getting the wage growth we need. Still, this is probably a good enough number to allow the Fed to stay on course in terms of adjusting policy, but it probably won’t cause them to change their timing from mid-year.”

MARKET REACTION:

STOCKS: U.S. stock index futures pared losses to turn positiveBONDS: U.S. bond prices rallied briefly before paring gains, with long dated issues performing worse and the yield curve steepeningFOREX: The dollar strengthened against the euro, declined slightly against the yen

Americas Economics and Markets Desk; +1-646 223-6300

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