US non-farm payrolls jump by 312,000, even as unemployment climbs

According to the Department of Labor, US non-farm payrolls increased by 312,000 in December, while the rate of growth in average hourly earnings picked-up by a tenth of a percentage point from the month before to 3.2%.

That dwarfed the consensus forecasts calling for increases of 184,000 and 3.0%, respectively.

The rate of unemployment however also increased unexpectedly, by two tenths of a percentage point versus the prior month to reach 3.9% (consensus: 3.7%), as the labour force participation rate climbed from 62.9% to 63.1%.

A development that monetary policymakers at the central bank will very likely welcome.

Furthermore, Labour revised its estimates of non-farm payroll growth for the preceding two months higher by a combined 58,000.

As Ian Shepherdson at Pantheon Macroeconomics had correctly predicted in the run-up to the report, Friday's non-farm payrolls number benefitted from 'pay-back' after weather-induced weakness over the prior two months.

Nevertheless, even Shepherdson had been expecting an increase of 'only' 225,000, versus a consensus projection for a gain of 184,000.

Following the release, Shepherdson was telling clients: "We expected a strong payroll number after the distortions of recent months due to two hurricanes, the California wildfires and the very cold November survey week, but this is spectacular.

"[...] This all puts the Fed in an awkward position. Markets, as usual, are overweighting the importance of the manufacturing sector, whereas the Fed has to act for the whole economy. But policymakers can’t be indifferent to manufacturing, lest they panic investors. Ultimately, they will do what the labor market data tell them to do, and reports which look anything remotely like this one make it impossible for them to back away from their plans to hike.

"We’d be very surprised by a hike in March, but if a trade deal is done in the spring and payroll growth softens rather than rolls over, as we expect, they will hike in June."

Paul Ashworth at Capital Economics on the other hand continued to be on the more hawkish side of opinions, saying: "Overall, the markets may have decided the Fed's work is done, but the economic data say otherwise. We still expect the Fed to hike interest rates up to two times in the first half of this year."

Nevertheless, he also pointed out how: "If it continues for another couple of weeks, the Federal government shutdown will reduce January's employment count by up to 800,000, which is a reason to focus on the private payroll measure."

Following Friday's data, as of 1537 GMT the yield on the benchmark two-year US Treasury note was adding nine basis points to 2.47% while that on the 10-year note was up by eight to 2.64%.