NFP Results: Enough For The Rate Hike?

On Friday, all eyes were on the US again as the last jobs report was released for this year. However, the outcomes came in with mixed signals but could be enough for the Federal Reserve to go ahead and hike the Fed Fund Rate in December’s meeting. Yet, there is still some confusion regarding the labour market in the US, which we will address in today’s article.

Results

Indicator	Actual	Forecast	Previous	Good/Bad
Non-Farm Payroll	178K	177K	142K	Good
Unemployment Rate	4.6%	4.9%	4.9%	Good
Average Hourly Earnings	-0.1%	0.2%	0.4%	Bad

• Non-Farm Payroll: The outcome came in line with market estimates. However, the previous reading was revised lower to 142K instead of 161K. In general, the numbers are looking good, but this is the fourth consecutive month in which the US adds less than 200K new jobs. This could be considered a slowdown.

• Unemployment Rate: There are many views on this. It’s true that the unemployment rate has declined to the lowest level since 2008. However, the notable decline of 0.3% in the month of November was driven by the sharp decline in the participation rate. The number of Americans who are not in the labor force soared to a record high of 95.1 million, a jump of 446K in one month. This has led to a decline of 0.2% in the participation rate from 62.9% to 62.7%. This should be seen as a shrinking labor market.

• Average Hourly Earnings: The average hourly earnings posted the first and biggest decline since December of 2014. Moreover, the YoY Average Hourly Earnings slowed down to 2.5% down from 2.8%. This is the lowest since September of this year.

Enough For The Rate Hike?

Despite the different views about whether the US labor market is expanding or shrinking, the Federal Reserve will have some room to raise rates in December of this year. However, despite that, traders need to be aware that the rate hike is already priced in. Moreover, the Fed is not happy with a stronger USD, especially because further rise will create more headwinds for exporters, inflation, and growth.

Therefore, a rate hike is still possible, but more likely to come with a dovish tone. Meaning, the Federal Reserve might send a new signal stating that rates will rise very gradually.

Why Did USD Decline?

One of the reasons behind the USD selloff is the average hourly earnings data. The Federal Reserve has always mentioned that they need to see further improvement in the labour market including higher wages, which should support inflation. With the instability of wage growth, the Fed is likely to remain cautious about raising rates.

What To Watch Next

It seems that traders are convinced that the Fed will raise rates in December. The Fed Fund Futures are pricing in a 100% chance for a rate hike in December. Does this mean that the Fed will hike? Don’t take things for granted. Many events have been totally against market expectations throughout the year.

Therefore, we would keep a slight margin for a surprise on December 14th. Yet, from now until the Fed’s decision, traders need to keep an eye on US equities, which eased some of its gains recently. Any sharp drop ahead of the Fed decision might keep the Fed away from raising rates.