US Jobs Report Becoming Increasingly Significant

Today’s U.S. jobs report may be seen to carry less significance than in recent months, particularly given the drama surrounding Chinese markets this week, but with the rate hike cycle now underway, the data will only become increasingly significant as it will largely determine whether a faster pace of tightening is necessary, or the Federal Reserve has made a mistake in initiating the process.

The Fed has repeatedly stressed that the future rate hikes will be gradual while at the same time insisting that any decision will be data dependent, so while they currently anticipate around four hikes this year, any hikes will be determined by economic performance, while a close eye will be kept on the external environment. With that in mind, events in China this week and their impact on global financial markets will not have helped the case for a rate hike in the next couple of months.

Today’s jobs report may have been overlooked for much of the week but it could provide a timely reminder of the improvements being made in the labour market which should develop into higher wages and inflation now that the slack in the economy has been greatly diminished. On the other hand, a weak jobs report would serve as bait to those who questioned the timing of the first hike, particularly if wage growth remains weak, as it did for large parts of last year.

Expectations are currently for around 200,000 jobs to be added in December which given the current levels of unemployment, would be a good enough reading to warrant further gradual tightening as the Fed is planning. Wage growth remains relatively weak at 0.2% and is expected to be unchanged in December but I don’t think the Fed will be too concerned at this stage, as long as the signs are there that it will pick up this year.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.