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Macro View

It is all about jobs today, as the market digests this morning’s significantly better-than-expected January jobs report. Not only do we have an impressive headline number, but the internals of the report speak of broad strength and an accelerating trend. Needless to say that the market will cheer today’s report.

The Bureau of Labor Statistics reported better-than-expected non-farm payroll numbers for January of 243K, compared to expectations in the 130K to 150K range. The tallies for December and November were revised upwards, belying expectations that last month’s strength was due to one-off seasonal factors.

The unemployment rate dropped again – to 8.3% from 8.5% in December. Average hourly earnings and the average workweek both ticked up, rounding out an overall very positive labor market report.

The expectation for a deceleration in the January number reflected the reversal of some seasonal factors that had supposedly boosted the December gains. Instead, we not only an accelerating jobs trend in January, but the very strong December number was revised upwards. This is consistent with all the major labor market indicators that have been showing an improving trend. Initial Jobless Claims have been steadily coming down.

The employment component of the manufacturing ISM survey was less favorable in January compared to the preceding month, but was nevertheless indicating jobs gains. Importantly, we have consistently been seeing greater improvements in the Household survey than in the Establishment survey over the last three to four months, indicating that the official jobs numbers are understating actual labor market gains. This shows to me that we are in the midst of a fairly stable improving labor market trend.

In this morning’s earnings results, we got an EPS and revenue beat from Tyson Foods (TSN - Analyst Report) on the back of strength in the meat processor’s chicken business. Weyerhaeuser (WY - Analyst Report), the real estate and lumber company, also beat earnings expectations on roughly in-line revenue. American Axle (AXL - Analyst Report) beat on EPS, but missed on revenue. Estee Lauder (EL - Analyst Report) provided a lower earnings guidance, citing increasing marketing outlays due to new product launches.

After the close on Thursday, Sunoco (SUN) confirmed its corporate restructuring plans that will result in the company shedding its remaining refining assets and holding on to only its midstream logistics (the Sunoco Logistics, or (SXL - Analyst Report), stake) and marketing business. The company also announced a leadership change, a 33% boost to quarterly dividend, stock buybacks totaling about 20% of the company’s market cap, and debt repayments and other liabilities. This is a significant shareholder-friendly initiative that will bring down the company’s risk profile.

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