The U.S. economy added 467,000 jobs in January, well ahead of the consensus estimate of 125,000, and December’s disappointment was wiped off the books after being revised upward from 199,000 to 510,000. Seasonal adjustments in January are often challenging and today’s upside surprise should probably be greeted with some skepticism. Nevertheless, a strong print in the month when the economic damage from Omicron likely peaked certainly tilts positive for the economic outlook. While good news for the economy, S&P 500 futures dipped modestly following the release on concerns over a potentially aggressive Federal Reserve (Fed).
“For markets, the jobs report is all about the Fed, and today’s upside surprises in both job creation and wage growth likely keep the Fed on track to begin raising rates in March and potentially hike four or more times this year,” said LPL Financial Asset Allocation Strategist Barry Gilbert.
Wage pressures continued to make themselves felt. Average hourly earnings rose to 5.7% year over year versus expectations of 5.2%. The unemployment rate ticked up from 3.9% to 4.0% but for the right reason as more workers joined the labor force. The labor force participation rate climbed a solid 0.3% to 62.2%, the best number since the recession but still well below the pre-pandemic peak.
As shown in the LPL Chart of the Day, job gains, after updated seasonal revisions, have been holding steady near 500,000 per month. However, gains are expected to slow over the course of 2022, likely averaging somewhat in excess of 300,000 per month over the year, which would still likely be enough to support solid above-trend economic growth.
The Fed is likely to discount the report somewhat and we don’t think it will materially change the path of rate hikes, but it did certainly support the Fed’s current emphasis on trying to get inflation back under control. Market participants will be keeping a close eye on next week’s January Consumer Price Index (CPI) report, with current consensus that year-over-year headline inflation will rise from 7.0% to 7.3% amid increasing signs that the yearly data may be near its peak.
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