US Labour Market Surprises to the Upside

US Labour Market Surprises to the Upside

The dollar continued to carry momentum into the weekend, with the bulk of US labour market data surprising to the upside on Friday afternoon.

Data from the Bureau of Labor Statistics indicated that nonfarm payrolls rose by 256,000 over the month of December, far exceeding markets expectations of around 160,000. This represented the strongest print in nine months, and marked an increase from November’s print which was revised down by 15,000, from 227,000 to 212,000. Here, a rise in employment was seen in health care, government, and social assistance.

In a further indication that the US labour market continues to remain more robust than some would have expected, the unemployment rate fell 10bps from 4.2% to 4.1%. This came as the number of long-term unemployed (those jobless for 27 weeks or more) fell to 1.6m, as the number of those not in the labour force who currently want a job, was broadly unchanged at 5.5 million – roughly the entire population of Barcelona. Its therefore important not to lose sight of the fact that the US labour force remains below its productive potential, given this figure.

Notwithstanding the strength of the payrolls print and unemployment data, average earning’s marginally missed expectations, easing from 4% to 3.9%. The Bureau noted that average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents to $35.69 over the course of December.

Nevertheless, the strength of the data saw markets downwardly revise their expectations of a rate cut at the next FOMC on 29th January. Presently, money markets are implying that there is less than a 3% chance of a 25bps cut.

Looking further ahead money markets are implying that just one 25bps cut has been fully priced in by the end of the year, a meaningful reduction from the 50bps worth of cuts being priced in at the start of the year.

Such a change in expectations around the Fed’s future monetary policy pathway helped push the DXY to its highest level in two-years, with the dollar index rising north of 1.0975 on Monday’s session.

With US data surprising to the upside, market participants are eagerly awaiting how the incoming Trump administration could impact the US labour market especially with regard to migration, government workforce levels, the impact of tariffs in addition to other fiscal policy measures. US workers could also be impacted by Trump’s positing towards Labour unions, which he has been outspoken against.