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A great jobs report: +257K, revisions add a huge 147K. Average hourly earnings rise 0.5%, much better than expected. Year over year, we have 2.2%. The unemployment rate  is up to 5.7%, worse than expected but the  participation rate is up to 62.9%.

The USD is much stronger with EUR/USD losing over 100 pips

More:  EUR/USD falling towards the bottom of the wedge after the NFP

The US was expected to report a gain of around 230K jobs according to the initial estimates. However,  the hints towards the event pointed to lower figures, and markets may have expected 210K. The unemployment rate was predicted to remain at 5.6% while wage growth, which is becoming more important, carried predictions for a rise of 0.3% after the previous fall.

The dollar was somewhat weaker towards the publication– lots more coming.

Data (updated)

  • Non-Farm Payrolls:  257K  (exp. +230K, December  saw 252K  before  revisions)
  • Participation Rate: 62.9%  (62.7% last month )
  • Unemployment Rate: 5.7%  (exp.5.6%,  last month 5.6% before revisions)
  • Revisions:  +157K  November is up from 353K to an astonishing +423K. December is up from 252K to 329K  (+50K  last month)
  • Average Hourly Earnings:  +0.5% m/m, 2.2% – the biggest rise since November 2008  (exp. +0.3% m/m, last month -0.2% m/m, 1.7% y/y)
  • Private Sector: 267K  (ADP showed a gain of +213K jobs).
  • Real Unemployment Rate (U-6): 11.3%  (previous: 11.2%).
  • Employment to population ratio: 59.3%  (previous: 59.2%)
  • Average  workweek: 34.6  (last month: 34.6).

Analysis and currency reaction (updated)

  • EUR/USD traded around 1.1450, moving up and down with one eye of Greece. The pair is down through support at 1.1373 with the low at 1.1350.
  • GBP/USD was on the move higher, trading around 1.5350. Cable  is down to 1.5263, nearly 100 pips.
  • USD/JPY remained very stable around 117.30. The pair is getting out of the tight range and rising to 118.37.
  • USD/CAD traded around 1.2450. A jobs report is released in Canada at the same time. Canada’s report also beat expectations. The pair is only slightly higher at 1.2473.
  • AUD/USD traded higher around 0.7840. The  RBA’s report may have  indicated another rate cut. The pair falls below 0.78.
  • NZD/USD traded around 0.7425. Kiwi is down to 0.7357.

Quick analysis

Basically it’s all good.

  • Strong headline, and strong  revisions: 404K in total.
  • Wage gains erase doubts. More  importantly, year over year we have a number above 2%.
  • The drop in the unemployment rate can be easily ignored because of the +0.2% rise in the participation rate.

One point of worry is the pick up in the “real unemployment rate” from 11.2% to 11.3%. But is this also part of the expanding economy?  Note that the employment to population ratio, that hardly moves, is also up.

Background

US data was not too good of late: GDP growth came out worse than expected, factory orders plunged and triggered a USD sell-off, manufacturing looks poor and most importantly for this report, the employment component of the ISM non manufacturing PMI pointed to weak job growth.

All this probably pushed real  expectations  to a smaller job gain.  There is a lot of focus on wages. Here  are 3 reasons for stronger wage growth.

In our latest podcast, we do an  Aussie Analysis, Greek Grindings and Oil Optimism.

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