Good Friday AM,

Today is Jobs report day and that is all we should speak about. Equites are mostly down but bonds are getting clobbered on the news. The 10-yr is now at 1.92% and mortgage bonds are -46bps.  Not so much the data, which showed an amazing amount of jobs created (supposedly) than anyone could have imagined. Doing a deeper dive to the 467k new jobs, there are changes in accounting that have skewed the numbers and there are also up to 5mm people that are “employed” but not working or getting paid. The unemployment rate ticked up to 4% so more people in the labor force (of course as stimulus wound down and their self-employment didn’t seem to work out as they had hoped). Despite people showing hired but not actually working, those count in the today’s print of 467k  jobs added. This is all based on what is called the U3 data (I am sorry for being technical). The U6 data which is much more reliable and looks at unemployed, underemployed, and a whole host of other categories which make up our workforce and population has an unemployment rate of 7.2%. Yup. The bottom line here is that no one really believes these numbers are accurate (especially when ADP shared that payrolls were negative 250k on Wednesday) So people considered employed but not getting paid? How does that actually work? The bottom line is that the numbers mean far less than how the Fed will react to them at the March meeting. That next Fed meeting is 3/15-3/16 and the Fed will have one more jobs report before then to digest. Most of this has already been priced into the rate sheets, but there is a knee jerk reaction we are dealing with. I would hope and wait to see if we can close this gap. There are some great comments from the WSJ that I am going to include below as they cover a wide range of employment components and paint a different picture than the one we see in the headlines.

Real Time Economics

U.S. payrolls grew by 467,000 in January and the jobless rate rose to 4% as the economy weathered the Omicron wave and staffing shortages. Greg Ip and Jeff Sparshott here to take you through the Labor Department’s latest snapshot of the economy.

Maybe We’ve Already Learned To Live With The Virus

Sometimes it’s nice to get your forecasts wrong. Nonfarm employment jumped 467,000 in January from December, three times Wall Street’s official consensus, and much better than the outright decline some forecasters expected. Importantly, December’s increase was revised up to 510,000 from 199,000 and November’s was revised up to 647,000 from 249,000. The reason for the revisions: The Bureau of Labor Statistics changed its estimate of how recurring seasonal patterns influence monthly employment; those patterns had been heavily distorted by the pandemic. As a result, it now says total job growth was 709,000 higher in November and December but 807,000 lower in June and July. The net picture is that the Delta and Omicron variants of Covid-19 did not slow job growth through the winter. The virus was certainly present: 3.6 million people were away from work because of illness in January, compared to 2 million in January 2021 and 1.1 million in January 2020. If any of those people were left off the payroll in January, then their return would make for even stronger job growth in February. —Greg Ip

A Better, but Confusing, Picture of the Labor Force

Superficially, January was a great month for labor supply. The labor force expanded by 1.2 million from December and the participation rate–the share of the working-age population working or looking for work–jumped to 62.2%, the highest since the start of the pandemic, from 61.9% in December. As today’s Capital Account notes, the U.S. had been an outlier among advanced economies for its depressed participation and Friday’s report goes part way to narrowing that gap. But the good news is undercut somewhat by the reason for the change: Starting with January’s data, the Bureau of Labor Statistics incorporated new estimates of the population based on the decennial census. This accounted for the rise between December and January in both the labor force and participation rate. The BLS, as is customary, did not revise any historical data based on new population estimates. If it had, the labor force would likely have declined in January from December. —Greg Ip

The overall unemployment rate ticked higher in January, to 4% from 3.9% in December, as fresh data showed that more people joined the labor force. To be counted as unemployed, a person has to be actively looking for work. So while the number of employed rose, the number in the labor force grew even faster (even if, as noted above, that is somewhat for technical reasons).

Another sign of resilience in the face of Omicron: The leisure and hospitality sector posted the biggest job gains last month, led by restaurants and bars. In-person services have taken some of the hardest hits during the pandemic due to consumer caution and government restrictions. 

Employers have been forced to raise pay to attract workers. 

Even with January’s gain, employment in leisure and hospitality is down by 1.8 million, or 10.3%, since the start of the pandemic. Overall employment is down 2.9 million, or 1.9%, from its level in February 2020.

The Omicron surge did have an impact on the labor market. About 3.6 million workers were absent from work due to illness or a medical condition. “However, workers were counted on the payrolls so long as they were paid for the pay period covering the survey week, even if they had to use sick days,” said Wells Fargo economist Sarah House.

Employees worked fewer hours. “Average weekly working hours fell from 34.5 from 34.7, showing that the impact of the pandemic is still here as more workers had to cut hours due to illness, quarantine or family obligations,” said Glassdoor senior economist Daniel Zhao.

The number of people who teleworked in January because of the pandemic rose sharply, 6 million people last month said they had been unable to work because their employer closed or lost business due to the pandemic, and 1.8 million said they were prevented from looking for work due to the pandemic, according to the Labor Department.

A steady gain in hiring last month keeps the Federal Reserve on track to lift interest rates next month and could prompt increases at meetings in May and June. Fed officials had already signaled they were prepared to look past Friday’s report amid fears of a hiring slowdown from the Omicron variant of the coronavirus, which surged across the U.S. last month. Instead, the report showed surprising strength in hiring, not just last month, but over the past several months. The report underscores just how difficult it is to forecast near-term changes in the economy right now. —Nick Timiraos

Please remain safe and healthy, enjoy the weekend and first make today great!