2015 ended very well for the US labour market as 292,000 new jobs were created. The revisions to the previous months were also good as the two-month net revisions were +50,000. Overall, the US labour market rebounded in Q4 with on average 284,000 new jobs added after the slowdown in Q3 where 174,000 new jobs were created per month on average. In total, employment rose by 2.65m, which however was lower than in 2014 when employment increased by 3.12m. Despite the weak activity data lately, the strong labour market tells us that the underlying growth in the US is solid.
However, average hourly earnings (AHE) disappointed. Although AHE increased back to 2.5% y/y in December from 2.3% y/y in November, both we and consensus expected it to have risen by more. AHE trended slightly up in 2015 and we expect wage growth to pick up further this year as the labour market continues to tighten.
We stick to our call that the Fed will hike three times this year despite the strong employment growth. Although today's jobs report increases the probability that the next hike will be in March, we think the Fed will be on hold until April. While the strong labour market is key to understanding why the Fed has begun tightening monetary policy, the Fed has communicated that it would like to see more underlying inflationary pressure before tightening too much too quickly.
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