Strong nonfarm payrolls could put Fed’s interest rates on hold in 2020

Stronger than expected nonfarm payrolls pushed US dollar against all currencies. Unexpected 266,000 change of employed vs 186,000 expected and 160,000 anticipated in November made US dollar surge to 1.1070 vs Euro (EUR) and 108.900 to Japanese yen (JPY). Gold dumped by 0.6% to $1467 an ounce just after labor market data were released.

Average hourly earnings were also above expectation at 3.1% year-on-year in November.

US Bureau of Labor Statistics also revised October nonfarm payrolls up to 156,000 from 128,000.

Strong labor market statistics confirmed Fed decision to pause with further interest rate actions and makes them even more unlikely in next six months or even by the end of 2020. Policymakers already signaled the market three interest rates cuts in 2019 are more than enough and Fed should assess all side effects of those decisions on the economy. Powell recently indicated FED never has “a crystal clear real-time picture of how the economy is performing” due to a possible revisions of incoming data, i.e. revision of payroll job creation by the Bureau of Labor Statistics in August and October 2019.

What is “Nonfarm payrolls” and why is it important?

“Nonfarm payrolls” usually published by US Bureau of Labor Statistics first Friday each month is not usually a standalone indicator but a group of indicators reflecting the health of labor market in United States. Beside nonfarm payrolls numbers average hourly earnings should be closely monitored. The bigger-than-expected earnings rise will mean more domestic consumption and household spendings, which represents about 70% of the US economy. Significant lower-than-expected earnings’ growth could slow down consumption and indicate unhealthy trend in labor market. Other indictors like unemployment rate, private nonfarm payrolls, participation rates are mostly for reference and are not much of importance for markets.

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