US unemployment drops below 5.0%

Unemployment in the US dropped to 4.9% as the US created another 151k jobs in January. The number of jobs was less than the market was expecting at 185k which added fuel to some commentators’ arguments that the US might be headed for recession in 2016. Others such as the Royal Bank of Canada, said in a report “The short-sighted folks out there will, on the basis of private job gains missing the mark by a mere 22,000, conclude that this was a weak report, but the underlying details suggest otherwise”. A significant element of the payroll report was the significant jump in wages. RBC further commented that “Wage pressures look to be perking up now that we have crossed into the Fed’s explicit full employment zone and thus continued declines in the unemployment rate should ultimately put some pressure on the FOMC to maintain a bias to continue removing accommodation.” The wage growth numbers in particular would appear to support the US Fed’s decision to raise interest rates at its December 2015 meeting, a decision that has been widely questioned with the extreme volatility seen in markets at the start of 2016.