Investors and traders aren’t enamored with the January jobs number.
And why should they be? After all, at 227k it “only” beat estimates by something like 50k.
Seconds after the number hit the tape, the algos jumped all over the miss in average hourly earnings which grew 0.1% m/m, the slowest pace since August and just one third of consensus. Yields dipped, the dollar fell, and so did the odds of a March rate hike.
Everyone seems to think the Fed will make like the vacuum tubes and key on the AHE miss on the way to effectively killing the March meeting (despite San Francisco Fed chief John Williams’ insistence that all meetings are “live”).
Not to put too fine a point on it, but that’s absurd. If the committee uses one AHE miss to justify pushing back policy normalization after eight years, then we’ll have the closest thing we’ll ever get to proof that central banks are looking for any available excuse to forestall tightening.
I wrote quite a bit about this on Friday. Here are the links:
Around noon on Friday, WSJ published a piece that essentially reinforces my point. Excerpts are below.
The January jobs report suggests the Federal Reserve may be able to wait longer before raising rates again. Investors should be careful about latching on to that idea, though.
The wage figures give credence to the idea that a fair bit of slack remains in the labor market and that, despite some employers’ protestations to the contrary, there is no real shortage of qualified workers. That suggests that the Fed can keep rates on hold through at least the first half of the year.
Yet that is a pretty big conclusion to arrive at on the basis of one jobs report. Wage figures can bounce around a fair bit for a variety of reasons. Better job growth in lower paying retail jobs versus higher paying manufacturing jobs (something January’s numbers show) can put downward pressure on overall earnings.
Moreover, through the fits and starts of the monthly figures, the underlying trend in wage growth has been higher. If the recent pace of job gains continues, the pool of available workers will further dwindle and wage growth will pick up. That isn’t a situation in which the Fed will be able to stand idly by.
Ask yourself what happens to this graph if rates go up. It already does not look great https://fred.stlouisfed.org/series/DRBLACBS