In our view, the jobs report was mainly positive, although the headline was weaker than expected. Employment grew by 151,000 in January, significantly lower than employment growth in Q4 (which was also revised down) but trend growth still seems solid, in our view.
Average hourly earnings (AHE) surprised on the upside despite the fall in the annual growth rate. AHE has been trending up over the past year, reflecting the tighter market. As we expect the US labour market to tighten further this year, we also expect wage inflation to increase. We know from recent Fed communications that it would like to see more 'hard' evidence that inflation will increase. Hence, AHE will be an important market mover this year.
With respect to our current Fed call, today's release was no smoking gun. A smoking gun could be when Fed chair Janet Yellen speaks next week. This is the first time we will hear from her since the Fed increased the target range in December and we will listen carefully to hear what she has to say.