NFP Analysis: Shock growth shows worker supply is rising, inflation to fall, US Dollar to retreat


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  • The US reported another increase in jobs in January, showing ongoing labor market strength. 
  • Wage growth has slowed down, allowing some breathing space for the Federal Reserve.
  • Massive worker return means wage-related inflation can fall.

Shocking – positively shocking. That has been the response to the first Nonfarm Payrolls report for 2023, which showed a whopping gain of 517,000 jobs in January, far above the 223,000 projected by economists. The leap is a result of annual revisions but also of a super-strong economy. The unemployment rate dropped to 3.4%.  

Stocks initially dropped, and the US Dollar gained ground alongside yields in expectation of a faster pace of rate hikes by the Federal Reserve. 

However, there is more in store. The labor market data is important as full employment is one of the mandates of the Federal Reserve (Fed). The other mandate is price stability, aka inflation, and the bank focuses on wage-related inflation.

On the salary front, there is more stability. Average Hourly Earnings rose by 0.3% MoM, as expected and 4.4% YoY, above 4.3% expected, but below 4.8% reported for December according to the revised data. That means inflation has room to fall. 

Another reason to be optimistic is that the massive job growth shows there are still people on the sidelines who are not participating in the labor market. The participation rate rose from 62.3% to 62.4%, which is still below the 62.8% seen before the pandemic. Figures were much higher before 2008.

If more people continue returning to the labor market, wages and inflation will fall. That is why there is room for the Fed to ease its policy, not necessitating to cool down the labor market as more people come back. Moreover, wage growth is coming down and will likely continue doing so.

Therefore, this is an excellent market scenario – the economy continues growing, so companies make money without salaries eroding profits. 

For the US Dollar, it means room for the Fed to go easier and, therefore for the US Dollar to fall. A strong US economy also benefits the world, allowing other currencies to rise. 

When the dust settles, there is room to be cheerful., 

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