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Fast Comment USEmployment growth continues to go from strength to strength

  1. Strong employment gains, while wage gains cool
  2. Payroll largely unaffected by the shutdown, but the unemployment rate is boosted
  3. We expect weaker growth and rising unemployment to prompt the Fed to cut rates next year
Strong employment gains, while wage gains cool
Total non-farm payroll employment increased by 304,000 in January, more than the consensus expectation of 165,000. Despite strong employment growth, unemployment increased slightly from 3.9 percent to 4.0 percent, partly because of the federal shutdown (see below). Wage increases have been slower than could be expected considering the continuing tightening of the labour market. Recently, however, wage growth has been picking up more markedly. In January, wage growth was 0.3 percent m-o-m. The annual gain of 3.2 percent matched consensus expectation though was down from an upwardly revised 3.3 percent in December. All in all, the employment report suggests the US economy is still expanding at an above-potential pace, which would normally require the Fed to raise interest rates.
Payroll largely unaffected by the shutdown, but the unemployment rate is boosted
The Bureau of Labor Statistics has stated that, “Federal workers who did not work due to the partial federal government shutdown will be counted as employed, because they will be paid for the reference period”. However, there may be a small indirect hit to private payrolls from the shutdown. Unlike the payroll survey, the government shutdown will affect the household survey, which is used to calculate the unemployment rate. The federal employees who did not work during the shutdown will be classified as unemployed. That means that the shutdown boosted unemployment in January by about 0.1 percentage point.
We expect weaker growth and rising unemployment to prompt the Fed to cut rates next year
As the impact of monetary tightening intensifies and fiscal stimulus fades, we expect employment growth to gradually slow in 2019, resulting in a rebound in the unemployment rate in the second half of 2019. We think the economic slowdown means the Fed will cut rates next year. Our main scenario is that the Fed implements a final hike in June, but given the dovish tone of the policy statement and press conference following Wednesday's FOMC decision, we see a fair chance that the Fed will not hike this year.


Disclaimer
Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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