Monster Jobs Report Pits QE3 Risks Ease Against Stronger Economy

The US jobs data blew away market expectations with the private sector posting 257k job gain, more than 50% more than the consensus expected. Manufacturing added 50k jobs, more than 4x more than expected. The unemployment rate fell to 8.3% from 8.5%. Hourly earnings rose 0.2% and the work week remains at 34.5, where the Dec figure was upwardly revised to from 34.4.

The significance of the data is two-fold.

First, it eases fears that this year was repeating the past two years where a fairly robust Q4 as followed by a softer Q1. This coupled with other recent reports for January show the year has begun off on a firm note.

Second, it has policy implications. The prospects for QE3, for which recent comments by Bernanke suggests the bar may be lower than previously perceived is not as imminent as some observers have argued.

The importance of the employment report is based on it, economists have input into other economic reports over the course of the month. Based on the employment data and the stronger than expected auto sales report bodes well for retail sales. The jump in manufacturing employment suggests a strong industrial and manufacturing output. Rise in construction spending should see another strong construction spending report.

The drop in the unemployment rate reflects a 508k rise in the labor force and a dramatic 847k rise in household employment.

The dollar initially sold off on a risk-on knee jerk reaction. The easing of QE3 ideas has seen in come back. In addition, news that the will not be an agreement on Greece before the weekend, meaning that the European ministers meeting initially planned for Monday will be postponed, also weighed on the euro.

In the tug of war between QE3 hopes and news of a stronger US economy, the latter appears to be winning out.