US labour market continues to remain solid after very strong jobs growth in December

US companies added jobs at a stronger pace than before in December, suggesting confidence in the outlook despite headwinds from the global economy. Overall, 292k jobs were created while the unemployment rate held at 5.0%. Wages stagnated, but only due to a statistical quirk. All in all the report suggests that the Fed is likely to raise interest rates further with the next move presumably coming in March.

Nonfarm payrolls increased by 292k in December, above forecasts (Forecast and consensus: 200k). Job gains in earlier months were revised up by a total of 50k. The unemployment rate held at 5.0% (5.01% vs. 5.04% when rounded to two decimals).

Despite the headwinds from the sluggish global economy, the strong dollar and cutbacks in the oil sector, the US economy created more jobs in December than on average during the first eleven months of 2015 (220k). This indicates that the weakness in Q4 GDP growth which is estimated to be around just 1% is likely to be temporary. The only aspect that may disappoint some is the stagnation in average hourly earnings. However, this wage statistic has proved prone to measurement problems, as businesses in the survey often do not consider the fact that the number of working days and thus also the number of hours worked do change from month to month.

"We suspect that employers reported an exaggerated number of hours worked in December which had were fewer working days than November. The consequence is that average hourly earnings are understated. This happened before for example in December 2014 when average hourly earnings surprisingly decreased by 0.2% on November. This was followed by a substantial 0.6% increase in January 2015. Similarly, we do not expect that last month's data indicate that wage pressure is easing. Rather, like a year ago, a sharp rise in average hourly earnings can be expected in counterbalance in January", says Commerzbank.

Inflation has become the deciding factor for the Fed's policy path. As the US central bank believes that tightening resource utilization will contribute to higher inflation, the ongoing improvement in the labor market as indicated by today's report sends an important message to the Fed. With the Fed feeling confirmed in its baseline scenario, the next rate increase is only a matter of time.