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Healthy U.S. job growth tells markets to cheer up

Employers added a robust 304,000 positions in January
labour market, economy
U.S. President Donald Trump at the White House in Washington, U.S., on Feb. 1, 2019. REUTERS/Jim Young

By Gina Chon

WASHINGTON (Reuters Breakingviews) - Healthy U.S. job growth in January is telling markets to cheer up. Employers added a robust 304,000 positions. While the jobless rate rose slightly to four per cent, it’s due to the partial government shutdown that ended a week ago.

The Federal Reserve recently reassured gloomy investors worried about global growth. But the U.S. economy is a better guide for the central bank than stock prices.

The government closure that lasted a record 35 days tempered expectations for January employment. Economists surveyed by Reuters estimated that hiring slowed to 165,000 jobs last month. But several sectors, including hospitality and construction, showed healthy growth and the labour force participation rate ticked up to 63.2 per cent.

The December payroll report was revised downward by 90,000 positions but the average employment gains over the last three months came in at a healthy 241,000 jobs.

Yet investors have been nervous. Starting in October, volatility began to creep into the major U.S. stock indexes and they plunged in December when worries about trade talks with China and slower global growth took over. Investors have also been concerned about rate hikes in 2019; the Fed in December projected two this year. Stocks have recovered a bit since then but markets are still down from a year ago.

The Fed this week stressed it would be patient in assessing its next interest-rate move to allay investor concerns. Being flexible fits with the central bank’s usual behaviour of acting according to current economic conditions. Investors have interpreted Wednesday’s comments by Fed Chairman Jerome Powell as the end of rate hikes this year.

But they may be getting ahead of themselves. Powell also said the underlying U.S. economy is strong. If inflation, which has been subdued, starts rising again because of hiring growth and wage gains, the Fed may not feel the need to be so patient.

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