The US jobs data blew away market expectations with the private sector, posting a 257,000 job gain, more than 50% more than the consensus expected. Manufacturing added 50,000 jobs, more than 4x more than expected. The unemployment rate fell to 8.3% from 8.5%. Hourly earnings rose 0.2% and the work week remains at 34.5, where the December figure was upwardly revised to from 34.4.
The significance of the data is two-fold: First, it eases fears that this year was repeating the past two years where a fairly robust Q4 as followed by a softer Q1. This, coupled with other recent reports for January, shows the year has begun off on a firm note.
Second, it has policy implications. The prospects for QE3, for which recent comments by Bernanke suggests the bar may be lower than previously perceived, are not as imminent as some observers have argued.
The importance of the employment report is that based on it, economists gain insight into other economic reports over the course of the month. The employment data and the stronger than expected auto sales report bodes well for retail sales. The jump in manufacturing employment suggests a strong industrial and manufacturing output. Rise in construction spending should see another strong construction spending report.
The drop in the unemployment rate reflects a 508,000 rise in the labor force and a dramatic 847,000 rise in household employment.
The dollar initially sold off, on a risk-on, knee-jerk reaction. The easing of QE3 ideas has seen a comeback. In addition, news that the will not be an agreement on Greece before the weekend, meaning that the European ministers meeting initially planned for Monday will be postponed, also weighed on the euro.
In the tug-of-war between QE3 hopes and news of a stronger US economy, the latter appears to be winning out.