Investing.com – As was predicted by the ADP employment report this week, Friday’s official government report revealed better-than-expected job creation, but still left weak spots which could keep the Federal Reserve (Fed) from moving forward with further interest rate hikes.
The U.S. economy created 227,000 non-farm payrolls (NFP) rose in the first month of 2017, handily beating the consensus estimate for the creation of 175,000 jobs.
However, the jobless rate unexpectedly rose to 4.8%, surprising analysts who were looking for it to hold steady at December’s reading of 4.7%.
Wage inflation eased more than expected in January with of a month-on-month gain of just 0.1%, compared to expectations for a 0.3% gain. Year-on-year, the increase in average hourly earnings weakened from 2.8% to 2.5% in January, lower than estimates for a 2.7% rise.
The increase in wages is being closely monitored by the Fed for evidence of diminishing slack in the labor market and upward pressure on inflation.
“Notwithstanding strong job growth, renewed wage sluggishness and the higher participation rate will make the Fed more cautious about a March hike,” Allianz chief economic adviser Mohamed El-Erian explained after the release.
Indeed, markets cut the odds for a move at the next Fed meeting down to about 9% from around 18% the prior day, according to Investing.com's Fed Rate Monitor Tool.
LPL Financial chief economic strategist John Canally pointed out that job growth in the last 12 months has averaged a robust 195,000 per month, “nearly double what the Fed thinks is needed to tighten the labor market”.
However, given the mix of indicators within the release, Canally concluded that the report “keeps the Fed on track for two to three hikes in 2017”.
Markets have long disagreed with the U.S. central bank’s median forecast issued last December that it would hike interest rates three times this year, with Fed fund futures only pointing to two increases with the first in June and the other in December.
Odds for both moves decreased after the jobs report, slipping to around 63% from Thursday’s 65% for the hike in June and ticking down to 67% from the prior 68% for the second increase at the end of the year.