January’s US jobs studies are surprisingly good

A recruitment sign is pictured at a McDonald’s restaurant on July 8, 2022 in Garden Grove, California.

Robyn Beck | AFP | Getty Images

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What you need to know today

  • January’s US jobs report was amazing all round. Nonfarm payrolls rose 517k for the month, beating analysts’ estimate of 187k. The unemployment rate fell to 3.4%, the lowest level since May 1969.
  • US stocks, worried about what such a strong jobs report means for the future of interest rates, fell across the board on Friday, with all indices posting losses. Asia Pacific stocks ended Friday mixed as troubled Indian conglomerate Adani Enterprises managed to close 1.38% higher.
  • Amazon’s shares took a hit following the company’s earnings report, falling 8%. Although both Apple and Alphabet also posted disappointing fourth quarters, Alphabet’s stock slipped 2% while Apple’s stock rose 2%.
  • PROFESSIONAL First it was Chevron with a $75 billion buyback. Next, Meta announced its own $40 billion plan. Is this a sign that share buybacks will become more common in 2023?

The final result

In normal economic times – that is, the past 20 years of low inflation, moderate unemployment and slow growth – the January payrolls figure would have been cause for celebration. No matter which angle you look from, the report shone: A 517,000 rise in jobs — almost three times what analysts were expecting. An unemployment rate of 3.4% – the lowest in more than 50 years. Hourly wage growth of 0.3% – solid but still weaker compared to the rest of the year.

Still, markets fell on the news. On Friday, the S&P 500 fell 1.04% to 4,136.48, the Nasdaq Composite got out of its sizzling heat and fell 1.59%, and the Dow Jones Industrial Average slipped 0.38%. True, indexes may have reacted to gains: Apple, Alphabet, and Amazon, which together have a market cap of nearly $5 trillion, reported results in the last quarter of the year that had more misses than hits. Investor disappointment was reflected in company share prices (although it’s worth noting that Apple stock actually gained 2% after an early loss), which in turn was reflected in indices.

First and foremost, however, investors certainly need to think about how the jobs report will affect the Federal Reserve’s yield curve. Central bankers have repeatedly stressed that they look at economic data to determine how far it should rise. The question is: Which dataset do they prioritize? We know that inflation, consumption and production numbers fell in December. But January’s jobs report paints a picture of an incredibly resilient labor market that could keep inflation high, particularly in the service sector, which has posted the most gains over the past month. Fed Chair Jerome Powell has indicated his focus is on the job market, which he described as “off balance” in his press conference Wednesday after the meeting. Investors betting on a rate pause or pivot could be forced by the Fed to find a new equilibrium as well.

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