Payrolls boom!
I guess it seldom pays to underestimate the strength of the US economy, and once again so it proves!
Nonfarm payrolls smashed estimates in adding a remarkable +353,000 in January.
It's been pointed out previously that the figures can often be revised down later, but this month revisions to earlier periods actually added another +126,000.
Boom!
The unemployment rate held steady, at just 3.7 per cent.
The growth in average hourly earnings was also notably stronger than expected at 4½ per cent over the year to January.
Boom back better
It's quite remarkable, when you think about it!
Years were spent wondering whether interest rates could ever be lifted away from zero without crippling markets and the economy.
Yet here were are with the Federal Funds rate at up to 5½ per cent while employment booms along and stock markets have been casually making record highs.
Clearly there won't be interest rate cuts from the Federal Reserve before May at the earliest, or for as long as this strength in the economy continues, while the US 2-year Treasury yield jumped from 4.2 per cent to 4.4 per cent on this release alone.
Granted, there could still be a significant lag effect at play, and over recent days the US regional banking crisis has roared back into the headlines, just when we thought the worst of the issues might have passed.
NYCB was the latest bank to chalk up a sudden 40 per cent drop as it revealed a surprise quarterly loss, with a pile of future loan losses to come.
In Australia, the monetary policy channels operate a little differently, since most borrowers are on variable mortgage rates (or at least short-term fixed rates).
Central bank moves in Australia have more impact, more quickly...both on the way up and on the way down.
On this basis, it looks increasingly possible that interest rates will be heading lower in Australia before the US, but there will be plenty of resistance to moving too soon, and employment numbers will be watched closely for any signs of significant deterioration.
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