January Jobs Report Was a Blowout. Disregard the Seasonal Noise.

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The U.S. economy added 353,000 jobs in January, far above expectations, while the unemployment rate held steady at 3.7%. Only bond investors groused, pushing up yields and sending prices lower.

Angus Mordant/Bloomberg

Forget Rorschach. Economic statistics, and the interpretation thereof, probably reveal more about your psyche than any inkblot ever could.

A good example is the latest employment report for January, released Friday morning.

The numbers were a blowout, with nonfarm payrolls expanding by 353,000, twice what economists had forecast, while average hourly earnings jumped by 0.6% in the month and 4.5% from a year ago. Revisions to the two preceding months’ payrolls added another 126,000.

Meanwhile, the separate survey of households showed that the unemployment rate held at 3.7%, extending the sub-4% jobless-rate streak going back to December 2021. All of which confirms that, notwithstanding the popular perception that the economy is weak, the data say the opposite.

Lies, damned lies, and statistics, to cite the quote attributed to Mark Twain. And throw in seasonal adjustments as further obfuscation, according to the critics who exhort those on their social-media feeds “to do your own research.”

Before seasonal adjustment, payrolls plunged by over 2.6 million in January, don’t you know! Actually, this happens every January, and last month’s unadjusted drop was the smallest since 2012, excepting 2021 and 2023, Jefferies economist Thomas Simons points out in a research note. And the latest seasonal-adjustment factor added fewer jobs than any January since 2014. If last year’s seasonal adjustment had been applied to the latest number, the headline nonfarm payrolls gain would have been 496,000, he added.

The biggest nit to pick in the January jobs report was the sharp decline in the workweek, of 0.2 hours, to 34.1 hours, the lowest outside of recessions. But as J.P. Morgan Chief U.S. Economist Michael Feroli explained in a client note, the shorter workweek appears linked to the jump in average hourly earnings. Bad weather apparently cut the number of hours worked, which meant salaried workers saw an arithmetic boost to hourly earnings.

“While today’s report contained more than the usual amount of noise, the overall picture looks to be one of a still quite strong labor market, and an economy starting 2024 with plenty of momentum,” he concluded.

On that score, the Federal Reserve Bank of Atlanta’s GDPNow estimate for first-quarter gross domestic product is running at a 4.2% annual pace.

Those employment data were too good for the bond market, which pushed up yields (and commensurately pushed down prices) on Friday. For the stock market, good news was good news, and the
S&P 500 index
Dow Jones Industrial Average
ended the week at records. (I’ll defer to colleagues Eric J. Savitz and Jacob Sonenshine, respectively on the Tech Trader and The Trader columns, regarding Big Tech earnings and their impact on the equity market.)

Prior to that, however, Treasury yields had fallen sharply, with the benchmark 10-year Treasury yield plunging 30 basis points (0.3 percentage points), below 4%. Part of that reflected a flight to quality apparently in reaction to losses and a dividend cut announced by
New York Community Bancorp,
which reminded market participants that commercial real estate problems remain and sent the bank’s shares tumbling 38% on Wednesday. Some of the bond backup also might have reflected errant weak whisper numbers on the jobs report.

The slide in bond yields was a bit surprising, given that Fed Chairman Jerome Powell all but precluded a cut in the central bank’s federal-funds target rate in March, from the current range of 5.25% to 5.50%. His comments came in the news conference on Wednesday following the meeting of the Federal Open Market Committee, where, as expected, no other policy changes were made.

One interesting revision in the panel’s policy statement was the removal of the reference that the “U.S. banking system is sound and resilient” after the NYCB news.

The fed-funds futures market dialed back slightly this past week its expectations for rate cuts this year, to five moves totaling 125 basis points—to 4.00%-4.25% by December—from six cuts. The futures market now looks for the first cut in May, while most Fed watchers are split between a May and June commencement on Fed easing.

Yet, as noted here last week, the markets’ expectations for rate reductions are far in excess of the three cuts envisioned by the median projection in the most recent FOMC Summary of Economic Projections. The five cuts priced into the market would be consistent with a sharp weakening in the economy, which conflicts with the major stock indexes at records.

After the market closed on Friday came news that the U.S. had launched anticipated strikes on Iranian-backed targets in Syria and Iraq in retaliation for the killing of three American soldiers stationed in Jordan.

How any of this news is interpreted may depend on one’s preconceptions.

Write to Randall W. Forsyth at [email protected]

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