The January nonfarm payrolls 157k increase was in line with expectations, but the back month revisions were worth another 127k and average hourly earnings rose 0.2% a bit more than expected. The risk in the unemployment rate to 7.9% from 7.8% reflects two things -- the participation rate and the incorporation of new census data.
The revisions mean that the economy created a net 196k jobs in December and 247k in November. This clearly shows that the fiscal cliff issues did not in fact restrain hiring. Some Fed officials have suggested job growth needs to be closer to 200k a month and sustained before they feel comfortable with a turn in the labor market.
There are no significant policy implications. The FOMC just renewed its commitment to open-throttle monetary policy with $85 bln a month in long-term asset purchases.
The forces that are driving the fx market -- the passive tightening of euro area monetary conditions, some evidence that the regional economy is recovering, couple with the weak Japanese data and the Abe government commitment to aggressive monetary and fiscal stimulus are unaltered by the U.S. employment data. This means the euro is likely headed higher and about $1.3700, short-term operators look for $1.3800-30. The dollar slipped a bit against the yen, but look for the JPY91.60-80 level to hold.
After the shockingly weak Q4 US GDP, there was some fear that with the end of the payroll savings tax holiday, the U.S. may have slipped in to recession (defined as 2 quarters of contraction). However, we cautioned then, and reiterate in light of the employment data, that this is unlikely.