Economic Indicators

Instant view: Hot January payrolls validates Fed reticence to ease soon

2024.02.02 09:44


© Reuters. FILE PHOTO: A CVS retailer advertises it’s hiring in Cambridge, Massachusetts, U.S., August 28, 2023. REUTERS/Brian Snyder/File Photo

NEW YORK (Reuters) – U.S. job development accelerated in January, probably as a resilient economic system and powerful employee productiveness inspired companies to rent and retain extra staff, a pattern that might defend the economic system from a recession this 12 months.

Nonfarm payrolls elevated by 353,000 jobs final month, the Labor Department stated on Friday. Data for December was revised increased to present 333,000 jobs added as an alternative of 216,000 as beforehand reported. Economists polled by Reuters had forecast payrolls rising 180,000.

Average hourly earnings elevated 0.6% final month after rising 0.4% in December.

MARKET REACTION:

STOCKS: U.S. inventory futures pared sturdy positive factors and have been final up 0.07%, nonetheless pointing to a close to flat opening on Wall StreetBONDS: The U.S. Treasury 10-year yield jumped to 4.005%; Two-year yields rose to 4.382% FOREX: The turned 0.73% constructive

COMMENTS:

KEVIN GORDON, SENIOR INVESTMENT STRATEGIST, CHARLES SCHWAB, NEW YORK

“If there was any doubt that the March cut was still being debated I think that has been put to bed which is at least helpful for a clarity perspective.”

“The interesting part of the past year almost the past full year is that the market has been horribly wrong about the near-term trajectory of Fed policy and this is another instance where that’s the case. Not only did you get the ultimate clarity from Powell at the meeting, in the rare instance that he would opine on that and sort of come out directly and say, it that a March cut was off the table. But this is another economic puzzle piece that paints the bigger picture of the market just getting too far ahead of the Fed. The key to think about in thinking about rate cuts and how we’ve been thinking about them is that the market’s been correct in assessing that the inflationary backdrop is going to help set the conditions for the Fed to cut but it’s probably ultimately the labor market that’s going to push them into cutting and then will determine the pace and the size of cuts themselves.  So the market’s probably missing the labor component but has rightly assessed the inflation component because that’s what the Fed has told us.”

“In the short term there’s going to be a little bit of a digestion phase because the market had been expecting the Fed to cut sooner, but in the medium term it could still be a good thing because generally a resilient labor market, strong economy is good for stock prices.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT ​

“Non-farm payrolls data is showing strength in the overall economy and it’s lowering expectations for rate cuts and that’s causing stocks to be repriced or at least the market is rethinking as to when and how much of a rate cut is going to be coming in the future. The growth in jobs is a good, healthy sign for the overall economy, and the revisions are not all that unexpected, but I think the size of the revisions are probably what’s a bit surprising.” 

JOSEPH LAVORGNA, CHIEF U.S. ECONOMIST, SMBC NIKKO SECURITIES, NEW YORK

“It’s a very strong number which actually now shows the underlying job trend accelerating not decelerating, which had been the case going into the end of last year. The wages were strong. Job gains are broad based. Unemployment stayed quite low.

“The earnings surge probably overstates to some extent the degree with which wages are rising, because other, broader measures of labor compensation have not shown the strength of earnings. But even so, that number was better than expected.

“The only real part that was soft was the work week that fell a couple of tenths from 34.3 to 34.1. That could be related to the weather only because weeks typically shift around the most if there’s weather distortion, but beyond that, the report was very, very strong.”

KEITH LERNER, CHIEF MARKET STRATEGIST, TRUIST WEALTH, ATLANTA

“By any means, it’s a blowout number relative to expectations, not only the headline number but wage growth was double expectations. It probably gives you an idea on why Powell pushed against the March expectation of a rate cut. The kneejerk reaction for the market is a selloff because you can see yields were jumping. Ultimately, from a market perspective, you may have that kneejerk, negative reaction because it pushes that rate cut further. But I’ll trade a stronger economy with less rate cuts than a weaker economy with more rate cuts. This is good for profits but its pushes more on how soon we would see rate cuts and that’s what the market is reacting to, initially.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“We should stop being surprised by surprisingly strong payrolls numbers. The initial estimates are always bad and the benchmark revisions show just how bad. Last January they overstated the level of employment by nearly a quarter of a million people. If the Fed is data dependent, that’s somewhat scary. They should base policy on principles not backward looking and noisy data. Manufacturing employment is broadening, so even if service sector growth slows, maybe manufacturing can start carrying its weight. The wage gains are high, but hopefully the Fed recognizes that with strong productivity growth wage gains aren’t something to be feared.”

DAN BOARDMAN-WESTON, CHIEF EXECUTIVE OFFICER, BRI WEALTH MANAGEMENT, LONDON

    “It was a knock-out jobs report which is a bit stunning. It actually challenges and questions the narrative on Fed fee cuts. On Weds the Fed pushed again on March hikes and stated it will be information dependent. This (report) forces markets to recalibrate their ideas on May fee cuts as properly. It continues to present the economic system is in very, very sturdy positon.”

    “The first rate cut will probably be in May. The general direction for inflation and the economy is downward but it can be bumpy.”

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW VERNON, NEW JERSEY

    “It was much better than expected… The economy is clearly stronger than investors and economists thought given the rate rises that we’ve seen, and maybe it does explain a little bit about why the Fed is not in much of a rush to cut rates quickly.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“These are hot numbers, and they explain the reasons why the Fed was hesitant to declare an inflation victory. I’m surprised at the jump in payrolls, and the (December) revision makes this report even hotter than the headline would suggest.”

“Wage growth like this gives the Fed a reason not to cut rates anytime soon.”

“Bottom line is this report positive for the economy but a negative for the Fed.”

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