Investors certainly liked the US payrolls overnight and five consecutive months of +200k jobs growth sounds like an economy building momentum

Investors certainly liked the US payrolls overnight and five consecutive months of +200k jobs growth sounds like an economy building momentum. But how much momentum? Most of the jobs growth is in sectors with low wage levels such as retail and tourism, so the typical flow-through from a strong US labour market to a robust US economy may be less egregious this time around. Nevertheless, with the unemployment rate down to 6.1%, it is closing in on its potential rate of around 5.4% which suggests a smaller output gap that current market expectations and Fed forecasts. However, US trend growth is now around +2.2% given lower population growth, participation and productivity, but with inflation still low and set to remain low, the Fed will be pleased with the result and in no hurry to lift rates, with inflation likely to move above +2% before a policy response is undertaken. (VIEW LINK)