Employment Details Better than the Headlines

The US created fewer jobs than anticipated and the December gain was revised lower.  However, the other details were favorable--better than expected.  The unemployment rate ticked down to 4.9%, a new cyclical low, despite the rise in the participation rate (62.7% from 62.6%).  

Average hourly earnings were stronger than expected at 2.5%.  The consensus expected a 2.2% year-over-year pace.  The December pace was revised to 2.7% from 2.5%.  The average weekly hours also ticked up to 34.6 from 34.5 hours.  It does not sound like much, but with over 150 mln workers, a 6 minute a week increase translates to around 400k full-time equivalents. 

The income increase bodes well for consumption, and this will likely be seen in next week's retail sales report.  We already know that auto sales increased sequentially.  The 29k increase in manufacturing jobs was the largest increase since November 2014.  The consensus expected a 2k decline.  The December rise was revised to 13k from 8k.  This bodes well for manufacturing output.   Construction added 18k jobs.  December had added 48k, perhaps helped by the unseasonable warm weather. 

Although there is more talk of  recession in the US, this is still not the kind of data one associated with an economic contraction.  That the US economy hit a soft patch is indisputable.  However, this is not the same thing as a contraction.    While we have doubted the Fed's four hike call, we think the market is similarly extreme in not fully pricing in a single hike this year. 

Separately, the US trade balance was reported in line with expectations.  The Atlanta Fed's GDP tracker says the US economy expanded by 1.0% in Q4 and 1.2% in Q1 16.  

Canada's employment report was disappointing.  The unemployment rate rose to 7.2% from 7.1%.  The economy shed 5.7k jobs, but this was all part-time work.  Full-time jobs grew by 5.6k.  Canada's trade deficit was a quarter of the size expected and the November deficit was revised a quarter smaller.  

The US dollar has strengthened in response and US rates are firming.

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