US Non-Farm Payrolls Data Misses Estimates

The Non-farm payrolls (NFP) data was released yesterday. However, the US dollar did not move much. It has been the case for the past few months. Gone are the days where a strong or weak employment data would cause a 100-200 pip movement in the US dollar. The US jobless rate is at a 17-year low and the Fed is all set to hike rates on a gradual basis.

However, the market was closely watching the wage growth data. Poor wage growth has been an issue not only in the US, but also in several developed economies. The economic data released yesterday showed that the NFP data missed estimates, while the wage growth was in line with expectations. Still, the US dollar is not expected to decline against its rivals due to reasons given below.

According to the Labor Department, the US economy added 148,000 jobs in December, versus analysts’ estimate of 190,000. Retail sector added less number of jobs than expected. In November, employers added 252,000 jobs. The December figures missed analysts’ estimates. Still, it is not considered to be bad as the overall unemployment rate in the US stood at 4.1% in December, unchanged from the previous two months.

Economists argue that job gains above 100,000 a month is enough to keep the jobless rate in downward pressure. Further, the US economy has added 2.06 million jobs in 2017, a bit lower than 2016, but better than what economists expected after Trump became the President.

The job data also revealed that the average hourly earnings increased 2.5% on a y-o-y basis. The average hourly earnings growth in November was downwardly revised to 2.4%. On a m-o-m basis, the average hourly earnings growth of 0.3% was in line with analysts’ estimates. As the economy continues to fare well, the Fed may not hesitate to hike rates gradually in the current year.

For the past few months, analysts were questioning the validity of the Philips Curve (a theory which says that unemployment and inflation have an inverse correlation) as an instrument to predict inflation. However, Lloyds Bank’s Cross Asset-Strategist Robin Wilkins had stated that wages will soon catch up to the full employment scenario. The data reported yesterday may be the beginning of a stronger wage growth in the months ahead. Overall, the US dollar is expected to remain range bound against its rivals.

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