NFP Headline weaker – FED still set to move

EURUSD, H1

The 155k US November payroll gain after 12k in downward revisions was a disappointment, as was a down-tick in the workweek to 34.4 that left a 0.2% hours-worked drop, and weak figures for the construction sector. Yet the mix is typical of BLS survey week disruptions, as seen in September, and this month the week lined up with the California fires and cold stormy weather elsewhere. We saw the expected 0.2% hourly earnings rise that left intact the cycle-high 3.1% y/y gain, and a firm 27k factory job rise with a 0.2% hours-worked gain that left goods sector gains of 29k for jobs and 0.1% for hours-worked despite construction restraint. The 132k service sector payroll rise likely faced hits from the California fires, and lingering distortions from hurricane’s Michael and Florence. We saw gains of a firm 233k for civilian jobs and 133k for the labor force that left the jobless rate slipping to a 3.67% 49-year low, alongside an encouraging sustained participation rate bounce to the 62.9% figure seen in October. The employment report was not as weak as the headline jobs data indicate, though still modestly disappointing.

The FOMC will remain on track for a 25 bp December hike, even though there were a few misses in the report. The markets have shown some doubt about this month’s stance, however, with the futures now suggesting only about a 70% chance, versus 90% last month. The jobs report was strong enough to support the fourth tightening of the year, especially as it’s difficult to discern if the slowing in some areas was a function of the inability to find skilled workers, and/or weather. Nearly all FOMC members have reiterated that the labour market remains strong, including Chairman Powell late yesterday. But, expectations are that the Committee will notch down its 2019 dots to show a median of only two tightenings in 2019, versus the three currently in place. Several on the Committee have counseled patience going forward amid uncertainties over growth (especially overseas) and some tempering in inflation expectations. And those factors should see the Fed pause at its January 29, 30 meeting, though we suspect another hike will be warranted at the March 19, 20 meeting. Remember there will be a press conference after every meeting beginning in 2019. And the new voting rotation will include well known doves Evans and Bullard, versus hawks George and Rosengren.