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Blowout Month: Nonfarm Payrolls 517K, Unemployment Rate 3.4%

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Friday, February 3rd, 2023

Nonfarm payrolls
from the U.S. government for the month of January were released this morning, and they bowled over expectations: 517K new jobs created for the month is almost 3x what analysts were looking for. It’s the highest print since July’s 537K, which itself was an outlier amid 300K levels mid-2022. Today’s headline is even more of an outlier. The Unemployment Rate sank to 54-year lows: +3.4%.

Revisions to the previous two months were also revised significantly upward: December’s holiday shopping season-influenced 223K originally reported is 260K on the revision, while November’s 256K bounds up to 290K. These are historically strong employment figures, led as usual by +128K new jobs created in Leisure & Hospitality. Government jobs, mostly on the state and local levels, grew an extraordinary +74K last month. Education reached +34K, Retail was +30K, Construction was +25K and Manufacturing +19K.

Investors were hoping for the Fed to come out next month with a new dot-plot scenario, and it looks like they will — just not the way people were hoping. If anything, this robust labor market gives permission to Fed Chair Powell & Co. to keep raising interest rates. Thus, the market up-bid over the past several sessions were looking a the possibility of the Fed holding pat at a 4.75% high end of the Fed funds rate; now it’s much more likely the Fed goes to 5% and beyond.

The good news here is that, even with such strong monthly jobs totals, Average Hourly Earnings are up +0.3%, the same as they have been in most monthly job prints over the past year. Year over year, we see +4.4% — down 20 bps from December’s number. This is not insignificant: we’re talking more than a half-million jobs created last month and wage growth is actually coming down. That’s pretty Goldilocks, in all honesty.

Labor Force Participation also supplied good news: 62.4%, the highest we’ve seen since March of last year, and finally starting to sop up labor demand that has been the bugaboo of the markets during this post-pandemic period. The Average Workweek came in at 34.7 hours, the highest since February (when jobs totals  were 714K), another positive development in shoring up the overall labor force.

While this does mean “higher for longer” interest rate levels is more imprinted in stone than before, it’s getting harder to see where an economic crash-landing would be coming from. If anything, the American economy looks more robust than even its biggest cheerleaders had dared express. It’s not keeping pre-market futures from selling off — the Dow is -210 points and this hour, the S&P 500 is -50 and the Nasdaq -250 points, but we are coming off high weekly and monthly gains.

The next question will revolve around productivity: even though Q4 came in a half-point higher than expected just yesterday, it doesn’t appear to have accounted for this much of a positive swing in labor force gains, at least according to this morning’s massive jobs report. We do know that all of this data is subject to revisions, but we see the trajectory we’re currently on: getting closer to full employment without wage gains spinning out of control. Despite what it means for the Fed funds rate, it’s hard to interpret this as anything but good news.

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