US employment growth continues to remain solid - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that there has been little follow through in the foreign exchange market from the release on Friday of the latest non-farm payrolls report for September.

Key Quotes

The report  was broadly in line with expectations limiting its impact on the foreign exchange market. Employment growth continues to remain solid although has slowed modestly this year increasing by 156k in September which is just below its average so far this year of 178k/month . In comparison employment growth averaged 229k/month during last year. It has been reassuring that employment growth has held up relatively well even as economic growth has been weak so far this year.

The report should support the Fed’s plan to resume rate hikes by the December FOMC meeting. It was always unlikely that the Fed would raise rates at their next meeting on the 2nd November just ahead of the Presidential election. The pick-up in labour force growth which has averaged 253k/month over the last year compared to 62k/month over the previous twelve months is a supportive development for the Fed as it is helping to prevent the labour market from tightening even more quickly and allowing them to maintain the gradual pace of tightening. It is the key reason why the unemployment rate has stabilized. There will now be two more NFP reports for the Fed to assess before the December FOMC meeting. Employment growth appears likely to strengthen in the coming months providing support for the US dollar.   

Fed Vice Chair Fischer has described the September NFP report as “solid” welcoming the rise in labour force participation. He described the September FOMC decision to leave rates unchanged as a ”close call” and denied that it reflected a “lack of confidence” in the US economy. Rather, he reiterated that the Fed chose to wait for more signs of progress on inflation, and employment goals. He believes there is “little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years”. The minutes from the September FOMC meeting will be released this week and should provide further insight into just how close the Fed was raising rates.”