US: FOMC will be cautious in reading too much into the magnitude of January's NFP – Wells Fargo

The data published on Friday by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls rose by 517K in January, well above market consensus. The numbers triggered a rally of the US dollar.  Analysts at Wells Fargo point out that there is still plenty of additional economic data between now and the March FOMC meeting, including another employment report and two more CPI reports, but they argue that even after accounting for the flattering seasonal effect on January payrolls, the report argues for the Fed to stay in a hawkish mood.

Key quotes:

“Seasonal adjustment factors appear to have flattered the headline as smaller-than-usual post-holiday layoffs bolstered the payrolls numbers. But the unusually few layoffs that translated into such a strong headline gain is indicative of what remains an incredibly strong jobs market, and other details of today's report underscored this strength.”

“Benchmark revisions increased the level of employment over the past couple years and showed stronger hiring momentum heading into 2023. At the same time, the unemployment rate fell to 3.4%, the lowest reading since 1969. Average hourly earnings growth remained solid and registered a 4.6% annualized rate over the past three months.”

“We suspect members of the FOMC will be cautious in reading too much into the magnitude of January's payroll gain, but the firm pace of average hourly earnings growth and a 53-year low in the unemployment rate should keep a 25 bps rate hike at the March 22 FOMC as the base case and another possible increase in May in play.”