It’s become a bit of cliché to call every single non-farm payroll report “the most important jobs report in years,” but leaving behind the hyperbole, today’s labor market report was certainly highly anticipated. Though the actual job growth had been very strong of late, with 11 consecutive months of over 200k jobs created, December’s 0.2% drop in average hourly earnings prompted many traders to second-guess expectations that the Fed would raise interest rates in the middle of the year.
As it turned out, the report was far stronger than even the most optimistic of bullish forecasts. The headline jobs growth came out at +257k, slightly above expectations of around 230k, but that was actually the least impressive aspect of the report. The widely-watched average hourly earnings measure spiked by 0.5% m/m in January, the strongest rate of growth since November 2008! Meanwhile, the previous reports were also revised higher by a total of +147k (bringing December’s NFP to 329k and November’s report to a staggering +423k), average hours worked held at a post-recession high of 36.4 hours, and the labor force participation rate even ticked up to 62.9%. This rise in the labor force participation rate explains the only potential blemish on the report, the small uptick in the unemployment rate.
There is no other way to describe it: this was a perfect jobs report, across the board. If these gains are maintained moving forward, a June rate hike from the Federal Reserve is absolutely on the table and may even be the preferred scenario if inflation shows signs of ticking higher.
So far, the market reaction reflects the stellar jobs report. The dollar is surging across the board, with the dollar index ticking back above 94.00 to 94.30 as of writing. EUR/USD reversed back lower, while USD/JPY spiked to the top of its recent range at 118.40. U.S. equities are on track to open modestly higher, while bond yields are spiking across maturities as traders price in a greater likelihood of a Fed rate hike. Commodities are divergence, with gold peeking below its 200-day moving average at $1250 while WTI is inching back above 52.00.