US Earnings Improve But Weak NFP Hogs the Spotlight

Today’s US jobs report was a bit of a mixed bag which will enable people to take away from it whatever suits their agenda. The headline NFP number will always hog the spotlight immediately following the release and the disappointment here, combined with slight downward revisions for February and March, sent the US dollar lower initially. The dollar has since recovered to trade back at pre-release levels which suggests markets aren’t as disappointed as the initial move would indicate. Of course we can often see a lot of volatility in the immediate aftermath of the data and only once the dust has settled do we see what investors really think of the numbers.

The upside to the report came from average hourly earnings, which I still believe is of high importance to a Fed that has constantly lauded the performance of the labour market and become frustrated with the lack of wage growth and inflation. Earnings were 2.5% higher compared to April last year, up from 2.3% in March. While this is still well below what the Fed would like to see, it’s a move in the right direction and as long as this continues, I think they will feel comfortable raising interest rates again. We’ll just have to wait and see whether the June meeting has come too soon. If not, the Fed has a job on its hands convincing the markets because at the moment, investors are far from sold on the idea. And if that remains the case, the Fed will struggle to justify the move given the chaos it could cause.

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