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Strong US jobs growth but weak wages in January

Non-farm payrolls rose by 227,000 last month, much higher than the 175,000 expected by economists

Ben Chu
Economics Editor
Friday 03 February 2017 14:43 GMT
There were job gains in financial activities in January
There were job gains in financial activities in January (Getty)

Job creation in the United States surged in January, but wage growth cooled sending an ambiguous signal about the likelihood of more near term interest rate hikes from the Federal Reserve.

According to official data, total non-farm payrolls rose by 227,000 last month, much higher than the 175,000 expected by economists.

However, the unemployment rate ticked up to 4.8 per cent, from 4.7 per cent previously due to an increase in the participation rate to 62.9 per cent from 62.7 per cent the previous month.

And average earnings grew by only 0.1 per cent in the month, down from the 0.2 per cent expansion in December and below analysts’ expectations, suggesting still muted inflationary pressure.

This was the first jobs report since Donald Trump was inaugurated as US President.

The Bureau of Labour Statistics reported job gains in retail trade, construction and financial activities.

US 10-year bond yields fell after the data was released, slipping about seven basis points to 2.437 per cent.

10 year US Treasury yield falls


The dollar index slipped too, declining 0.63 per cent from 100.24 to 99.64.

Analysts were divided about the implications of the report for interest rates.

“This is just what the doves at the Fed wanted to see,” James Athey, a senior investment manager at Aberdeen Asset Management, said.

“All of the numbers point towards it being more difficult to justify another hike in March.”

However, others said that there was still a strong chance that the Fed would put up the cost of borrowing at its meeting next month, after last raising rates to a corridor of 0.5-0.75 per cent in December.

“We continue to forecast a March rate hike from the Federal Reserve. Today’s wage growth numbers are not particularly helpful, but with GDP growth on an upward trend, the economy creating significant numbers of jobs and inflation figures looking consistent with the Fed’s medium term aspirations we think the case remains strong,” said James Knightley, a senior global economist at ING.

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