The US labor market defied dour predictions for job losses in January, government data out Friday showed.
Nonfarm payrolls rose 467,000 last month, a blockbuster result considering the circumstances. Consensus expected a gain of 125,000 and there was rampant speculation that the labor market shed jobs.
The range of estimates from 78 economists was -400,000 to 250,000. Had the most pessimistic forecast been realized, it would’ve marked the worst showing since the arrival of COVID-19 in the US brought the world’s largest economy to a standstill.
The data reflected annual revisions, which showed the average monthly gain in 2021 was 555,000.
The White House spent the last week doing preparatory damage control. Administration officials pointed to likely distortions from the Omicron wave in suggesting that any weakness would be short-lived. A very poor ADP report gave markets an early look at what was “supposed” to be extensive damage. Instead, private payrolls showed a 444,000 gain. That was nearly double the highest estimate. Consensus was just 33,000.
Job gains were broad-based. Employment in leisure and hospitality actually expanded by 151,000 last month, despite Omicron. Most of that (108,000) was attributable to restaurants and bars. Retail added 61,000 jobs.
The unemployment rate ticked higher to 4%, but the participation rate rose to 62.2%, the highest since the onset of the pandemic. That’ll likely please the Fed, and another hot read on wage growth should embolden the hawks. Average hourly earnings jumped 0.7% MoM, far more than expected. YoY, the print was a scorching 5.7%. Consensus expected a comparatively cool 5.2%.
Expectations for NFP had reset lower by Friday. Generally speaking, markets expected a dismal report and were prepared to write it off as transitory (bad joke fully intended) on the notion that many of the jobs lost to Omicron would be recouped in the coming months. Instead, traders were left to ponder an overtly hawkish read-through vis-à-vis the March FOMC.
“Overall, the headline and details are very strong,” BMO’s Ian Lyngen wrote, noting that the data “cements 25bps in March and adds to the case for 50bps.” “There’s still room for more hawkishness to be reflected in the front end, which will only serve to flatten the curve further,” he said.
There was certainly room for a “good news is bad news” reaction in equities, to the extent the data offset some of the “patience” banter emanating from Fed officials earlier in the week.
On the bright side, a resilient labor market could allay fears of a sharp slowdown tied to faltering consumption.
Write your own narrative.
“Don’t you know the prime rate is going up, up, up, up, up
To invest in this market you must be tough, tough, tough, tough, tough!”
-- "Shattered" (w. apologies to Mick Jagger)
I like a strong economy as do most voters.
YOY S&P 500 +8% with a FED illusion of normal.
Just curious, might it be that ADP provides a more accurate look at the labor market than NFP?
There were a lot of problems with the data because COVID has completely thrown off seasonal adjustments and there were some large revisions. Some of the metrics still indicated a good labor market- but others suggest it was not nearly as good as the headline numbers would tell an analyst. The Fed will still go in March, I would be surprised to see a 50, but hey you never know.