Dentalfloss
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US January 2018 Labour report: "Earnings jump to 9-year high steals the show"
a) Payrolls / Establishment survey - Clearly stronger than expected at +200K, though taking account of revisions (Dec 160K vs. prov. 148K, Nov 216K vs. 252K), this was essentially in line with forecasts. That said the 3-mth average moves up to 192K effectively double the Fed's assumption on the breakeven pace of monthly payrolls growth. In the detail, Services unsurprisingly led the way with a gain of +139K, in no small part by a +15K recovery in Retail jobs after 26K drop in December, and continued strength in Leisure/Hospitality (+35K), sectors which obviously tend to have a high preponderance of low paid jobs. Despite some negative sector survey signals, Manufacturing still posted a 15K gain, off the 25-30K pace of recent months, but still respectable. Benchmark annual revisions added just 138K or 0.1%.
b) Unemployment Rate / Household Report - This element of the report was rather more mixed, though not weak, with an unchanged 4.1% Unemployment Rate accompanied by a small uptick in the Underemployment Rate to 8.2% from 8.1%, and no change in the Participation Rate at a still rather soft 62.7%.
c) Average Hourly Earnings / Weekly Hours - But the above elements were completely overshadowed by Average Hourly Earnings that not only beat expectations at 0.3% m/m vs. a forecast of 0.2% m/m, but also saw December revised up to 0.4% m/m from 0.3%, which combined to take the y/y rate up to a nine year high of 2.9%, which will please the hawkish wing of the FOMC (Williams speaks later, as does Kaplan). It also offered a solid post hoc rationale for the FOMC's expression of confidence that inflation will be at target (2.0%) this year. Average Weekly Hours were disappointing at 34.3 (-0.5% m/m) vs. an expected / prior 34.5, with Manufacturing Hours down a more modest 0.3% m/m, which may have been partially due to the big freeze on the Eastern seaboard. Be that as it may, it does suggest a modest dip in Manufacturing Output.
d) Market reaction - The USD has seen has seen what can be best described as a grudging bid emerge, while equity futures remain under pressure as they were ahead of the data. US TIPS breakeven inflation rate continue what has been a steady march higher, and more interestingly the stealth bear steepening continues in Treasuries, though overall reaction has been relatively modest. Today's Fed speak and a hefty schedule next week will garner even more attention, as US debt markets negotiate the $66 Bln 3, 10 & 30-r refunding and keep an eye on developments in Congress, which needs to pass a stop-gap spending / debt ceiling extension bill by next Thursday.
- Charts: USD TWI, US 2/10yr yield spread, US 10-yr TIPS breakeven inflation rate, S&P500 future, March 2020 Eurodollar future and Fed rate probabilities by meeting.
..........................................................................
Marc Ostwald
Global Strategist
ADM Investor Services International
a) Payrolls / Establishment survey - Clearly stronger than expected at +200K, though taking account of revisions (Dec 160K vs. prov. 148K, Nov 216K vs. 252K), this was essentially in line with forecasts. That said the 3-mth average moves up to 192K effectively double the Fed's assumption on the breakeven pace of monthly payrolls growth. In the detail, Services unsurprisingly led the way with a gain of +139K, in no small part by a +15K recovery in Retail jobs after 26K drop in December, and continued strength in Leisure/Hospitality (+35K), sectors which obviously tend to have a high preponderance of low paid jobs. Despite some negative sector survey signals, Manufacturing still posted a 15K gain, off the 25-30K pace of recent months, but still respectable. Benchmark annual revisions added just 138K or 0.1%.
b) Unemployment Rate / Household Report - This element of the report was rather more mixed, though not weak, with an unchanged 4.1% Unemployment Rate accompanied by a small uptick in the Underemployment Rate to 8.2% from 8.1%, and no change in the Participation Rate at a still rather soft 62.7%.
c) Average Hourly Earnings / Weekly Hours - But the above elements were completely overshadowed by Average Hourly Earnings that not only beat expectations at 0.3% m/m vs. a forecast of 0.2% m/m, but also saw December revised up to 0.4% m/m from 0.3%, which combined to take the y/y rate up to a nine year high of 2.9%, which will please the hawkish wing of the FOMC (Williams speaks later, as does Kaplan). It also offered a solid post hoc rationale for the FOMC's expression of confidence that inflation will be at target (2.0%) this year. Average Weekly Hours were disappointing at 34.3 (-0.5% m/m) vs. an expected / prior 34.5, with Manufacturing Hours down a more modest 0.3% m/m, which may have been partially due to the big freeze on the Eastern seaboard. Be that as it may, it does suggest a modest dip in Manufacturing Output.
d) Market reaction - The USD has seen has seen what can be best described as a grudging bid emerge, while equity futures remain under pressure as they were ahead of the data. US TIPS breakeven inflation rate continue what has been a steady march higher, and more interestingly the stealth bear steepening continues in Treasuries, though overall reaction has been relatively modest. Today's Fed speak and a hefty schedule next week will garner even more attention, as US debt markets negotiate the $66 Bln 3, 10 & 30-r refunding and keep an eye on developments in Congress, which needs to pass a stop-gap spending / debt ceiling extension bill by next Thursday.
- Charts: USD TWI, US 2/10yr yield spread, US 10-yr TIPS breakeven inflation rate, S&P500 future, March 2020 Eurodollar future and Fed rate probabilities by meeting.
..........................................................................
Marc Ostwald
Global Strategist
ADM Investor Services International
