US NFP report helps ease concerns over growth slowdown - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the US dollar has strengthened modestly following the release of another solid US employment report for January.

Key Quotes

“It has helped to provide support for the US dollar after the sharp sell off from earlier last week which was triggered by heightened concerns over the US economic slowdown. The non-payrolls report has provided reassurance that US labour market conditions continue to improve solidly still providing favourable conditions for domestic demand.

The household survey revealed that employment increased by a robust 615k in January taking cumulative jobs gains over the last four months to just over 1.6 million. As a result the unemployment rate declined to 4.9% reaching its lowest rate since February 2008. The ongoing tightening in labour market conditions is encouraging higher wages. The report provided further clear evidence that wages are accelerating supporting the Fed’s decision to begin gradually tightening monetary policy. Private average hourly earnings rebounded more strongly than expected by 0.5%M/M in January resulting in the six-month annualized rate accelerating to 2.9% and reaching its highest rate since April 2009.

In contrast, we would view the volatility in the establishment survey with more caution. The survey revealed that employment growth slowed to 151k in January. It is a reasonable figure considering that it followed very robust employment growth averaging 279k/month in Q4 which was boosted by favourable seasonals. The underlying trend for employment growth still appears solid.

The ongoing tightening in labour market conditions will provide reassurance that inflation will return to their goal in the medium-term arguing in favour of further gradual monetary tightening ahead.”