U.S. employment growth strong in January, Fed likely to hike rates twice in 2017

Non-farm payrolls in the U.S. rose in January, coming in above the market expectations. Non-farm payrolls increased 227,000, as compared with the 180,000 projected by market. Previous year’s data was revised, indicating that 85,000 additional jobs were added than previously reported, with major upward revisions to summer and spring hiring slightly countering the downward revisions on the front and back end of the year.

Private payrolls increased 237,000, as compared with consensus expectations of 60,000. Private services hiring was led by professional & business services, retail, financial services and health care. Construction, mining and manufacturing also contributed to the goods sector. Meanwhile, the government sector shed jobs for the third straight month.

The jobless rate rose slightly by 0.1 percentage points to 4.8 percent as household employment pulled back in spite of some re-entry to the labor force. The influx of people into the labor force increased the participation rate by 0.2 percentage points to 62.9 percent sequentially. Several wider measures of joblessness also rose on the increased labor force participation. The employment-ratio was also up by 0.2 percentage points, matching the post-recession high.

Average hourly earnings were also up 0.1 percent sequentially, coming in below expectations, with the year-on-year wage growth slowing to 2.5 percent in January from 2.8 percent. Average weekly hours remained the same at 34.4.

The report appears to be a hit on several fronts. Job gains for 2016 were upwardly revised. Furthermore, the size of the hiring strength throughout industries was especially encouraging as far as the U.S. economic momentum is concerned, noted TD Economics.

The rate of unemployment rose; however, they rose for a good reason as continued strength in the labor market seems to be bringing in additional people. This is an encouraging development that policymakers and economists have been expecting for certain time and might give further arguments for the Fed doves to resist a more rapid pace of rate hikes.

However, in spite of the solid headline, the report is unlikely to push the Fed into a faster pace of wage hikes, with the baseline scenario expecting two hikes in 2017, with the next one likely to come during the mid-year mark, stated TD Economics.

At 05:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -68.1476. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex