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Jobs Report Highlights Same Old Problems

Once again the US has produced a strong labour market report for December but once again there was one important component that was lacking, wage growth.

The lack of wage growth in the US has been an issue for a long time now but it has become increasingly significant over the last 12 months due to the Fed’s decision to embark on a rate hiking cycle, despite inflation being well below the central banks’ target rate. In the absence of inflation, we’re left looking at a number of other indicators of future inflationary pressures to offer some indication of when we can expect prices to rise, one of which is wages.

Once again today, wage growth was lacking altogether having recorded 0% improvement compared with November. While this is a concern, we did see yet another strong month of job growth, while the labour force participation rate also rose to 62.6% and unemployment remained at 5%. All of this points to tighter labour markets which should drive wage growth going forward. Of course, we’ve been waiting for this for a long time and wage growth has remained subdued which suggests other structural factors are at play. While this may be the case, the Fed is clearly confident that these will subside and would rather be slightly ahead of the curve when this happens than playing catchup when wages, and inflation, do inevitably take off.

The question now is whether the Fed will want to see more than just job growth when it comes to future rate hikes, or whether it is confident in its assumptions and will pursue higher rates regardless. The rally in the dollar following today’s jobs report suggests the markets believe the latter. I still believe this may slow them down a little and four hikes this year may be a little optimistic.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [4]

Senior Market Analyst, UK & EMEA at OANDA [5]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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