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What's going on?
Data on jobs in the US was released on Friday and it painted a mixed picture. The unemployment rate fell to 4.9% in January (its lowest level since 2008), even though fewer workers got hired than was expected. Also, average hourly wages jumped noticeably.
What does this mean?
Lots of Januarys data has suggested that the economy is slowing down (like the data on services released last week). In some ways, Fridays report suggests otherwise: if wages are growing, its usually because the economy is doing well and needs more workers and therefore offers higher pay in order to attract them. However, the net number of new jobs was 151,000 in January, which was significantly below last years average monthly gain of 228,000. So, in that respect, the report was more consistent with signs that US economic growth is slowing. It was, overall, an ambiguous report.
Why should I care?
Bigger picture: The unemployment rate can be somewhat misleading. Unemployment only measures the percentage of people that dont have jobs despite actively looking for work. It doesnt account for people that have given up looking for work nor people working part-time when they would rather be working full-time. A broader measure that does include such categories remained stuck at 9.9% for the third straight month. So, the situation perhaps isnt improving as much as the drop in the unemployment rate suggests.
For markets: Stocks had a very rough Friday – but the US dollar went up. Part of the reason might be that higher wage growth should, on balance, make it more likely that the US Federal Reserve will raise interest rates. Why? Because its a measure of both economic growth and inflation and the Fed is wary that inflation doesnt get too high. That hasnt seemed like a problem yet, and many think it wont be a problem anytime soon, but if wage growth was to continue to increase it could be part of a stronger argument for higher interest rates (which could be a headwind for stocks but would probably also push the dollar higher).
Originally posted as part of the Finimize daily email.
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