I had planned a completely different commentary for today until 5:30 am when the day pivoted.
U.S. payrolls grew by 517,000 in January and the jobless rate fell to 3.4%, the lowest level since 1969. It is hard to believe these numbers are accurate. January’s payroll gains were the largest since July 2022 and the unemployment rate fell to a 53-year low. Jobs gains are 3x what was forecasted. Someone was asleep somewhere. I would have to say its at the reporting level, not the forecasting level. We will have to wait for the dust to settle, but I expect revisions.
Equity markets don’t seem to be believers either the S&P and Nasdaq are flat with the Dow up. Would be hard to understand why knowing that this report gives the Fed more running room to be hawkish. Bond traders take things at face value and are not gamblers. Bonds are off today, but not nearly as badly as they could, or I would think they should be. The 10-yr is roughly back to where we were before Wednesday’s Fed meeting.
If you are buying into the report, here are some interesting snippets from the WSJ:
Nonfarm employment soared in January by 517,000, more than double expectations. January is a funny month: Weather, seasonal adjustment and other factors, plus extensive revisions to 2022, can distort the underlying pattern. But it’s safe to say recent headlines about layoffs are not indicative of the overall labor market, which is as strong as ever. That’s also the message from the unemployment rate, which is based on a survey of households separate from the survey of payrolls. It fell to a new half-century low of 3.4% from 3.5% in December.
Booming job growth would normally mean upward pressure on prices, but hourly wages rose a very modest 0.3% in January from December, and nonmanagement wages were up just 0.2%. The 12-month growth rate for all private-sector workers slowed to 4.4% from 4.8%. But that may overstate the slowdown. Hourly wages were revised up throughout 2022. That yielded some oddities, such as nonmanagement wages in leisure and hospitality actually falling by 0.8% in January from the upwardly-revised December level. A month ago, the data suggested hourly wages had grown an annualized 4.1% in the three months through December, a significant slowing from earlier in the year. That’s now been revised up substantially to 5%, slowing only to 4.6% in January.
Enough on jobs, quick comment on the debt ceiling:
Ten Senate Republicans have recently introduced legislation giving priority to debt service, salaries for troops, and Social Security. While the Treasury probably can prioritize payments in this fashion and thus avoid defaulting, this still creates very large payment delays. Given that the budget deficit is about $1.2 trillion/year, or $100 billion/month, this would be a negative shock of 0.4% of GDP/month, driving us very quickly into a self-inflicted recession.
Please remain safe and stay healthy, enjoy the weekend, and make today great!