U.S. nonfarm payrolls strong in January, rate hike in March

Although the White House and Federal Reserve officials have warned earlier that the US non-farm payrolls data for January may be very "ugly", the actual results were unexpectedly strong and exceeded market expectations in basically every aspect. U.S. President Joe Biden said on Friday that jobs data for January showed the U.S. economy was no longer affected by the coronavirus outbreak.

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U.S. non-farm employment unexpectedly strong in January, interest rate hike in March is a certainty?

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Job creation in January far exceeded expectations, wage growth confirms inflationary pressures

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According to data released by the U.S. Labor Department on Friday, the U.S. non-farm payrolls increased by 467,000 in January, far exceeding market expectations and the previous level. Economists polled by Dow Jones had expected an increase of 150,000, compared with the previous level of 199,000. Meanwhile, the unemployment rate was 4% in January, slightly beating market expectations of 3.9%.

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The U.S. labor force participation rate rose to 62.2% in January, an increase of 0.3% from the previous month, and exceeded the expected level of 61.9%. The index hit its highest level since March 2020. When the number of people not actively looking for work and those working part-time for economic reasons is included, the unemployment rate fell by 0.2% to 7.1%, just above pre-pandemic levels. Among them, the number of people who only worked part-time due to economic reasons fell to 212,000 in January, down 37% year-on-year.

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Among the non-agricultural employment in January, the leisure and hotel industry had the largest number of hires, with a total of 151,000 new jobs, including 108,000 new jobs in bars and restaurants. Professional and service industries ranked second with an increase of 86,000, retail trade ranked third with an increase of 61,400, transportation and warehousing with an increase of 54,200, and government departments with an increase of 23,000. In addition, information, wholesale trade, health and social assistance, manufacturing, and financial activities all recorded increases, but new employment in mining, logging and construction declined. It is worth noting that although the leisure and hospitality industry recorded an average monthly increase of 196,000 jobs in the past 12 months, the impact of the widespread shutdown in 2020 is lower than the pre-pandemic level in February 2020. , still missing 1.8 million jobs, down 10.3%.

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Wage growth, which has been closely watched, has also grown rapidly. Average hourly earnings in the United States increased by 5.7% year-on-year in January and 0.7% month-on-month, both exceeding expectations. While wage growth was the largest since May 2020, it still lags inflation. Inflation rose 7 percent in December from a year earlier, the highest level in nearly 40 years, according to consumer price index (CPI) data. In addition, the sharp increase in wages also reflects the still tight labor market in the United States.

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Among the new numbers in the transportation and warehousing industries, thousands of couriers have returned to work. In January, workers picking up and delivering packages and mail rose by 21,200, and warehouse workers rose by 13,400. Notably, the nation hired 7,500 truck drivers in January, the third-highest number in the past 12 months. The U.S. Department of Labor said in a press release that January employment growth in express delivery, warehousing, trucking and air transportation surpassed February 2020 levels, with warehousing and express delivery showing particularly strong growth.

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Before the data was released, White House officials warned in advance that the peak of the epidemic brought about by the Omicron strain would lead to a temporary labor shortage, with millions of Americans leaving work because of illness or to care for their families. According to the US Centers for Disease Control and Prevention (CDC), the number of new crown cases in the United States has declined in recent weeks, and the average daily number of new crown cases on the 7th fell by more than 50% compared with the peak in mid-January. Most economists had thought the peak of the outbreak would have a temporary impact on the job market.

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In addition to the unexpectedly larger-than-expected non-farm payrolls data in January, the data in previous months were also revised up sharply. The December non-farm payrolls data was revised up to 510,000 from the previous 199,000, and the November data was revised up from 249,000 to 647,000, a total increase of 709,000 in the two months. In 2021, the number of new non-farm payrolls will reach an adjusted 6.665 million, the largest single-year increase in U.S. history.

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Surprisingly strong employment data basically made the Fed's March rate hike a certainty. Wells Fargo economists Sarah House and Michael Pugliese commented on Friday that the January nonfarm payrolls data reinforced the bank's expectations for the Fed to start raising interest rates in March. The recovery in the labor market has easily passed the challenges caused by the outbreak of the Omikon epidemic. Overall, total employment is down 2.9 million from its February 2020 peak.

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Wells Fargo believes that despite the emergence of the Omicron mutant strain, the strong employment data provides evidence for the Fed to confirm that the U.S. economy is gradually recovering from the epidemic. In addition, wage growth and a rebound in the labor force participation rate have reassured dovish Fed officials that the Fed's recent hawkish stance is correct. Wells Fargo also expects February nonfarm payrolls data to be released on March 4 to show some weakness, but it will not change the Fed's tightening plan. The first rate hike since 2018 is set to happen in March.

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Previously, according to the monthly job vacancies and labor turnover rate survey (JOLTS) released by the U.S. Department of Labor on Tuesday, the U.S. job vacancies reached 10.925 million in December, an increase of 1.4% from the previous month and exceeded expectations, showing that the U.S. labor market is still tight. . Nick Bunker, director of research at IndeedHiringLab, believes that the peak of the outbreak caused by the Omicron strain did not fully impact the labor market in December. Demand for workers remains strong, with layoffs at record lows. Meanwhile, the number of Americans filing for unemployment benefits fell for a second straight week last week, according to data from the Labor Department on Thursday, a sign that the U.S. labor market is rebounding from the shock caused by the Omicron virus strain.

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Although the non-farm payrolls data on Friday was unexpectedly strong and exceeded expectations, it also further proved that inflationary pressures are rising, which is bound to have a further impact on the Fed's monetary policy. Investors are still weighing the pros and cons of the two. Barry Gilbert, asset allocation strategist at LPL Financial, said that for the market, the employment data is completely tied to Fed policy. In Friday's data, both job creation and wage growth surprised markets, keeping the Fed on track to raise interest rates starting in March and at least four more this year.

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The rise in wages in January further confirmed the inflationary pressure in the United States. Former U.S. Treasury Secretary Lawrence Summers said markets need to prepare for the possibility that the Fed will raise rates at each of its seven remaining meetings this year, even more than 25 basis points in one go. Bank of America forecasts that the Fed will raise interest rates at all of its meetings this year, and Nomura Holdings last week predicted the Fed would raise rates by 50 basis points.

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Driven by the non-farm payrolls data, the yield on the 10-year Treasury bond exceeded 1.9% to 1.93%, the highest level since December 2019.