Jobs Growth of 353,000 Blasts Past Expectations as Labor Market Stays Hot Jobs growth far outstripped expectations, the latest surprise delivered by a labor market that has defied predictions of a significant slowdown.
Employers added 353,000 jobs last month, the Labor Department reported Friday. That was the strongest in a year and nearly double what economists surveyed by The Wall Street Journal expected. (…)
December’s payroll gains were also revised upward to 333,000 from 216,000, further undercutting the widely held view among economists and investors that it was becoming harder to find a job.
The unemployment rate in January held steady at 3.7% instead of rising to 3.8% as economists had forecast. Wages outpaced expectations, jumping 4.5% last month from a year earlier, though the large increase may have reflected a big drop in hours worked—a possible result of bad winter weather, some analysts said. (…)
The bulk of hiring last year came from just three sectors: government, healthcare and restaurants and hotels. In January, however, job gains broadened, with nearly two-thirds of private-sector industries adding to their payroll or keeping them steady. (…)
Employers added 353,000 jobs last month, the Labor Department reported Friday. That was the strongest in a year and nearly double what economists surveyed by The Wall Street Journal expected. (…)
December’s payroll gains were also revised upward to 333,000 from 216,000, further undercutting the widely held view among economists and investors that it was becoming harder to find a job.
The unemployment rate in January held steady at 3.7% instead of rising to 3.8% as economists had forecast. Wages outpaced expectations, jumping 4.5% last month from a year earlier, though the large increase may have reflected a big drop in hours worked—a possible result of bad winter weather, some analysts said. (…)
The bulk of hiring last year came from just three sectors: government, healthcare and restaurants and hotels. In January, however, job gains broadened, with nearly two-thirds of private-sector industries adding to their payroll or keeping them steady. (…)
First, let’s hear the critics of this totally surprising NFP report:
- It’s the weather: “The survey week corresponded with a stretch of severe winter weather that roiled economic activity across a number of US regions. It triggered freezing temperatures in Texas, heavy snow in the Midwest and flash flooding in the Northeast.” Poor data, faulty calculations, particularly on hourly wages which may have been boosted by reduced workweeks.
- It’s the revisions as the BLS conducted its annual annual re-benchmarking and update of seasonal adjustment factors.
- It’s the elections…
In any case, the data does say:
- Demand for labor remains strong and broad (diffusion index at 65.6), stronger than thought, pushing wages upwards at an accelerating rate:
- As seen below, jobs growth and wages have been accelerating since October:
- But declining hours in December and January are significant, if not weather-related. Below, the blue bar combines the number of employees with hours worked, down MoM in both December and January. It is quite possible that hourly earnings calculations may have been boosted by reduced hours. We’ll see in coming months.
- The end result is that aggregate weekly payrolls, a solid proxy for consumer spending (dashed line below), rose only 0.16% MoM in January after +0.3% in December and +0.8% in November. YoY trends are plotted below: aggregate payrolls are up 4.7% in January, a sharp deceleration from the 5.8% growth rate in November/December, dragged down by aggregate hours which rose only 0.4% YoY in January.
So, despite this strong NFP report (with its caveats), nominal consumer spending growth might have slowed in January. But more normal weekly hours in February could reverse this and make everybody realize that the labor market is even tighter than thought.
Particularly in services …
… where wage growth has unusually lagged that of goods-producing employees:
Goldman Sachs’ wage tracker now stands at +4.7% for Q4 vs +4.5% in Q3. Note the relationship between CPI-Services and wage growth and the trends since 2012. Is 4-5% the new normal?
All that said, we are still having The Wealth Defect: When inflation-adjusted household net worth rises rapidly above trend like in the late 1990s, the mid-2000s and recently, expenditures grows faster than income, i.e the savings rate declines.
Summers Warns of Interest Rates Well Above 3% Through 2030 Former Treasury chief notes economy strong despite rate rises
Former Treasury Secretary Lawrence Summers said the economy’s enduring strength in the face of vigorous Federal Reserve tightening makes it increasingly likely that neutral interest rates have risen.
“(…) Arguments in favor of neutral rates being higher thanks to fiscal deficits, and spending now being less sensitive to the level of borrowing costs, are “tending to be borne out,” he said. (…)
“One would want to be guessing that Treasury bill rates will be averaging well above 3% through the rest of this decade,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. Last year, the White House projection for bill rates in 2030 was 2.4%. (…)
Summers spoke hours after the government reported a much bigger jobs gain than economists projected for January. He said it was a “very strong number” that suggests, despite the Fed’s rate hikes over the past two years, “there’s a lot of strength in the economy.” (…)
The former Treasury chief also cautioned against dismissing the risk of a re-acceleration in inflation, given the economy’s strength. Fed Chair Jerome Powell earlier on Wednesday said that “the greater risk” than re-acceleration is that price gains “would stabilize at a level meaningfully above 2%.” (…)
- Powell Says Fed Has New Focus: When to Cut Rates The Fed chair said in a rare television appearance that officials “just want to gain a little more confidence” on inflation.
Federal Reserve Chair Jerome Powell said the central bank has shifted its focus toward deciding when to begin cutting interest rates, but that solid economic growth means officials don’t have to rush that decision.
Given recent economic strength, “we feel like we can approach the question of when to begin to reduce interest rates carefully,” Powell said during a rare television interview broadcast on CBS on Sunday night.
Powell, speaking on “60 Minutes,” said officials were trying to balance the risks of leaving rates too high for too long, which could cause an economic slowdown, and of cutting rates too soon and allowing inflation to settle above the Fed’s 2% goal. (…)
Bloomberg’s headline: Powell Tells ‘60 Minutes’ Fed Is Wary of Cutting Rates Too Soon
Too Soon to Cry Victory on Inflation, OECD Tells Central Banks Organization urges prudent policy as it cuts inflation outlook
Global economic growth is proving more resilient and inflation in the US and Europe is easing faster than the organization expected in its November outlook. But it warned that factors helping that process, including improvements in supply chains and commodity costs, are dissipating or even reversing.
The OECD also pointed to core inflation above target in most countries and growth in unit labor costs, in addition to risks of the Middle East conflict pushing up shipping and energy costs. (…)
Even when rate cuts do begin, the OECD said central banks will have to move more slowly than they did with the large, rapid hikes that began in 2022.
“Scope exists to lower policy interest rates as inflation declines, but the policy stance should remain restrictive in most major economies for some time to come,” the OECD said. (…)
Within major economies, the US was particularly buoyant at the end of 2023 thanks to strong consumer spending and labor markets, and the OECD revised up its forecast for 2024 growth to 2.1% from 1.5%.
On a global scale, that strength is largely offset by poorer expectations for most European countries, where the OECD said tight credit conditions are holding back activity. It cut its euro-area 2024 growth forecast to 0.6% from 0.9%.
The Bank of England left its key interest rate unchanged but signaled it is likely to lower borrowing costs this year for the first time since 2020, though perhaps not as soon as investors expect. (…)
Last week, the European Central Bank left its key rate at a record high but kept open the door to cuts as soon as the spring.
Inflation rates are falling rapidly around the world after a postpandemic surge. Unusually, that hasn’t come at the cost of a decline in economic output or a jump in unemployment. And with borrowing costs expected to fall, the International Monetary Fund on Tuesday said the global economy is likely heading for a soft landing this year. (…)
Sweden’s Riksbank also signaled a readiness to lower borrowing costs Thursday, leaving its key rate unchanged but indicating that a first cut may come in the first half of the year. (…)
While the U.S. economy has been growing rapidly over recent quarters, the U.K.’s has flatlined and isn’t expected to stage a strong recovery this year.
The BOE on Thursday raised its growth forecast for 2024, but even so now sees gross domestic product increasing by just 0.25%. In 2025, it expects an acceleration in growth to a still-modest 0.75%.
In its new forecasts, the BOE said it now expects the inflation rate to fall to its target in the second quarter from 4% in December, and be well below that two years from now if it were to leave its key rate unchanged. That is another signal that policymakers expect to ease monetary policy this year.
However, the BOE also publishes forecasts that assume it follows the rate path expected by investors. Those expectations include a first cut in May and a key rate of 4% by the end of this year. In that scenario, the BOE forecast that the inflation rate would be above its target two years out. That is a signal that policymakers don’t expect to cut rates as rapidly as investors anticipate. (…)
Eurozone Services PMI: Eurozone downturn at its weakest since July 2023
The HCOB Eurozone Services PMI Business Activity Index fell to 48.4 in January, from 48.8 in December, signalling a sixth successive month of falling service sector output levels. While only mild, the latest decline was the quickest for three months.
There is a north-south divide in the eurozone’s service sector, but perhaps not in the way you may expect. Contrary to the general view that southern European countries are the weak link of the currency union, these economies are presently performing relatively well. This positive trend serves as a counterforce, partially mitigating declines in Germany and France. Thanks to the resilience exhibited by Italy and Spain, the PMI for services experienced only a marginal dip to 48.4, maintaining proximity to the expansionary threshold of 50.
Weak demand conditions remained a major hindrance for activity, with the latest survey data indicating a seventh consecutive monthly reduction in new business. January’s drop in output came despite the faster completion of outstanding projects, which was evidenced by the sharpest fall in backlogs of work in close to three years.
The alleviation of capacity pressures was supported by increased hiring activity, with employment growth quickening to a four-month high. Greater recruitment tallied with an improvement in firms’ confidence towards the next 12 months. Expectations for growth were at their strongest since last May.
Price pressures across the service sector remained steep by historical standards, latest survey data showed. In fact, rates of inflation for both input costs and output charges accelerated in January, to their quickest for four and seven months, respectively.
China’s Lunar New Year Pork Gloom Exposes Deep Economic Trouble Festive season traditionally sees high demand for meats
For families across China preparing for Lunar New Year, the most important celebration in the calendar, pork is a must. An ingredient synonymous with prosperity and abundance, it’s used in countless dishes and cured for festive delicacies.
But in Beijing’s Xinmin market, vendor Wu Aizhen is struggling. Though pork prices have fallen by about a fifth compared to a year ago, she is selling a third less than she would in a normal holiday season.
Pork demand has been sluggish for months in China, but its continued weakness even as the country approaches peak season for elaborate meals sends a powerful message about consumption and oversupply in the world’s second-largest economy, as wage declines hit households and weigh on consumer prices. (…)
Cash-strapped developer Country Garden said on Saturday more than 30 of its projects had been listed by Chinese local governments as suitable for financing support, as authorities aim to inject liquidity into the crisis-hit sector.
China’s largest private property developer said in a statement to Reuters that its projects were included on the so-called “white lists” of the provinces of Heinan, Hubei, Sichuan, Shandong and the municipality Chongqing. The developer, which defaulted on its offshore debt late last year, hopes to enter the lists of Guangdong and Hunan provinces among others.
Country Garden said the projects, after being added to the white lists, could receive financing support, which would in turn helps ease the pressure on its liquidity and ensure the completion of homes.
Reuters reported on Friday that China aims to ramp up financing for home projects in the coming days as part of its support measures for real estate firms, but banks’ reluctance to lend to the sector will remain a major obstacle for the distressed developers that need fresh funding the most.
Under the “project white list” mechanism, governments of 35 cities across the country are gearing up to recommend to banks residential projects that need financial support.
Throughout 2023, we had the real estate accident happening in slow motion until unravelling in summer. Now, it’s the mending happening in slow mo, but its happening. (See China: “Here we go!”)
- China Services PMI: January sees further solid rise in service sector activity
At 52.7 in January, the seasonally adjusted headline Caixin China General Services Business Activity Index fell only slightly from
December’s five-month high of 52.9 to signal a further solid increase in service sector output. Business activity across the service economy has now risen in each of the past 13 months. However, growth momentum remained softer than seen on average over the series history.Chinese service providers registered a further increase in overall new business at the start of 2024, thereby stretching the current period of expansion to just over a year. According to panel members, firmer underlying demand conditions and new customer wins had supported the latest upturn in sales. However, the rate of growth eased notably from December’s seven-month record and was only modest.
New export business likewise rose at a moderate pace, with the rate of growth easing only fractionally from the previous month.
Chinese service sector employment rose for the second straight month in January, with firms often linking the increase to efforts to expand capacity amid higher sales. That said, the rate of job creation remained marginal overall, as some firms took a more cautious approach to hiring. (…)
The rate of cost inflation weakened across China’s service economy at the start of the year. Average operating expenses increased only slightly and at a rate that was comfortably below the series average. Where greater input prices were recorded, higher raw material, labour and transportation costs were often mentioned.
Prices charged by service providers meanwhile declined for the first time since April 2022 during January. There were a number of reports that firms faced pressure to cut their fees due to increased competition for new business. That said, the rate of discounting was only marginal overall.
EARNINGS WATCH
We now have 230 reports in, an 80% beat rate and a +6.4% surprise factor, broadly distributed.
The 230 companies having reported show a 6.6% earnings gain on +3.3% revenue growth.
Q4 EPS are now seen up 7.8% vs 4.7% on Jan. 1.
Trailing EPS are $221.14. Full year 2024: $242.22e.
- Tech Mania 2.0: Indeed, looking at TMT as a whole, not only are absolute valuations back toward the 2021 highs (and this chart takes a broader definition/set of valuation indicators), but valuations for tech stocks relative to ex-Tech are the highest they’ve been since 2001. Investors have fallen in love with tech, and are pricing-in very good times ahead. (Callum Thomas)
Neil Howe’s “The Fourth Turning is Here”