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Analysis

NFP Update | Significant job growth in US for December

BY Janne Muta, M.Sc in Finance

|January 5, 2024

NFP Update - The US labour market in December 2023 demonstrated significant resilience, adding 216K jobs, substantially surpassing the market expectations of 170K. This performance, notably higher than November's revised figure of 173K, signals a robust trend in job creation. The initial market response was moderate, with the USD strengthening and yields rising, though this initial dollar-positive reaction has since faded, leaving markets seeking direction after the unexpectedly strong employment report.

Summary of this NFP update report

  • The US labour market added 216K jobs in December 2023, exceeding forecasts of 170K and November's 173K. Initial reactions saw a mild USD rise and yields increase, reflecting robust job creation and economic strength, though market direction remained uncertain post-report.
  • Employment gains were noted in government, healthcare, social assistance, and construction, contrasted by losses in transportation and warehousing. The unemployment rate held steady at 3.7%, with a minor decline in labour force participation to 62.5%, indicating overall labour market stability.
  • Wage growth saw average hourly earnings increase to $34.27, a 0.4% rise. In response, Fed Funds futures traders adjusted their outlook, reducing the likelihood of a March rate cut from 64.6% to 55.2% and anticipating fewer rate cuts in 2024, signalling potential dollar strength.

Employment trends

The gains in employment were concentrated in specific sectors: government, healthcare, social assistance, and construction saw notable increases, while the transportation and warehousing sectors experienced losses. The unemployment rate held steady at 3.7%, indicating a stable labour market, despite a slight decrease in the labour force participation rate to 62.5% from November's 62.8%.

Rising wages and their economic impact

Wage trends continued to be positive, with average hourly earnings rising by 15 cents to $34.27, a 0.4% increase over the month, surpassing market expectations. This year-over-year wage growth of 4.1% points to strong labour demand and is likely to influence both consumer spending and inflation.

Fed's monetary policy adjustments

The Federal Reserve's interest rate policies are significantly shaped by these labour market conditions. The probability of a rate cut in March, initially set at 64.6% pre-NFP, has been revised down to 55.2%. Following the NFP release, futures traders adjusted their expectations from six rate cuts in 2024 to five.

Market responses and economic forecast

These adjustments in market expectations and Federal Reserve policy forecasts reflect a cautiously optimistic view of the US economy's resilience. The solid performance of the labour market, coupled with steady wage growth and a controlled unemployment rate, suggests a healthy economic environment. However, the Federal Reserve is likely to maintain higher interest rates for a longer period, potentially leading to dollar-positive outcomes.

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Janne Muta, M.Sc in FinanceChief Market Analyst

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.