A look ahead to the non-farm payrolls

Much of the US economic macro data in the latter part of 2014 indicated that the world’s largest economy was recovering, and was underpinned by the much better than expected non-farm payroll number in December. 

Janet Yellen, chair of the Federal Reserve
Source: Bloomberg

Job creation surged in November with the US economy increasing by a dazzling 321,000 positions, though the unemployment rate held steady at 5.8%.

The question is how influential temporary and short-term employment, as a result of Black Friday and Cyber Monday, were to this headline number.

This week saw private payrolls rise to 241,000, again much better than the median consensus of 227,000, but not necessarily an indication that the consensus expectation for the non-farm payroll print will be beaten. It is expected that the US added 240,000 jobs in the final month of 2014, and there is a possibility that last month’s number will be revised higher. The unemployment rate is expected to tick down to 5.7%. This could bring forth speculation that a rate hike will arrive sooner rather than later in the US, particularly since Janet Yellen has implied that this benchmark of slack in the economy is closely watched.

The Federal Reserve is tying its zero interest rate policy to wages, employment growth and inflation pressures, which have remained muted, allowing the central bank to stay in ultra-easy mode. The most recent FOMC minutes stated that the central bank could act even before inflation recovers.

The dollar strength, an ongoing theme since last summer, continues unabated, adding fuel to the possibility of tighter monetary policy in the coming year.

Ms Yellen has already stated, however, that she believes the US labour market is not as strong as headline numbers indicate, confirmed by a steady decline in the participation rate which currently stands at 62.9% – its lowest level since 2004. It will therefore be important – as always – to watch for any revisions to last month’s employment number.

For the time being, despite a broad selloff in equity indices recently – in the main due to geopolitical concerns, the imminent Greek election and the declining oil prices – markets appear to be shrugging off recent pessimism and have bounced higher in the aftermath of what was perceived to be fairly dovish and non-committal Federal Reserve minutes.



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