Update US Labour Market Dashboard

Mixed US labour market data, but the strong recovery remains intact

Next week, the Federal Reserve will meet for its first FOMC meeting of 2015. Ahead of the meeting, we provide you with an update of our Labour Market Dashboard to summarize the latest developments in the US labour market. Since the previous meeting at the end of December, one new payrolls and JOLTS report was published, providing the latest insights on the health of the US labour market.

After an excellent November payrolls figure, showing the strongest monthly jump in employment since early 2012, some observers were looking for a payback in December. Payrolls growth returned however back to its healthy trend, showing a gain by 252 000. In the meantime, the unemployment rate extended its impressive downtrend, falling from 5.8% to 5.6%, only a whisker above to the Fed’s full employment rate target of 5.4%. The December payrolls report brought however not only good news. The bad news was in the wage data. Average hourly earnings dropped by 0.2% M/M in December and the November data were downwardly revised too, entirely removing the encouraging signs seen in the previous month. There were however signs that the data might have been distorted by seasonal factors. Besides the payrolls, the November JOLTS report was mixed, but still, two sub‐indicators are coming very close to our target.

Although the underlying signs remain encouraging, a quick look at the table below shows that latest developments in our Labour Market Dashboard were mixed. Four out of our ten indicators improved further compared with the previous month (green arrows), while one stabilized and five indicators weakened. Again three indicators have met our self‐defined target, the same number as in December, but a few others are coming very close to our targets.

To conclude, since the December FOMC meeting the US labour market recovery continued unabatedly, confirming its recent trend. The unemployment rate is rapidly approaching the NAIRU rate, but wage growth remains the missing link. We believe however that the poor December wage data were partly due to special factors and still hope to see wages picking up later in the year. We believe that the poor wage data shouldn’t have a big impact on the Fed’s view regarding the labour market. After providing a positive view on the economy in December, the Fed will probably strike a more balanced tone this month following lower inflation data and extra easing measures from several other central banks.