January US Jobs Report Analysis and Market Reaction

Thanks for joining us. Here are five key takeaways from Friday’s US employment report for January:

• Payrolls blew away all economist forecasts, advancing 517,000, more than double the prior month and well above estimates for a slowdown to 188,000 added jobs. (The highest estimate called for a 320,000 gain.) The prior two months were also revised up by 71,000. In other words: a shockingly strong labor market.
• The unemployment rate unexpectedly ticked down to 3.4% from 3.5% as more people entered the labor market. The participation rate bumped up to 62.4%.
• Leisure and hospitality, professional services and health care led the advance, though gains were broad-based. Government, retail, construction and manufacturing -- all saw increases. Underscoring that strength: manufacturers added the most jobs since October, despite the sector contracting for the past four months.
• This report shows that the labor market, while good for workers, is too hot for the Federal Reserve’s liking. Policymakers have moved to cool demand with aggressive interest-rate hikes, though they have recently scaled down the size of those increases. This report shows that it’s not translating into weaker demand from employers.
• The risk-on mood that had dominated markets since the Feb. 1 Fed meeting evaporated after the report, though some market watchers say the magnitude of the moves could have been larger given how far off the payroll estimates were. S&P 500 futures dropped more than 1%, while Nasdaq 100 futures fell 2%. The Bloomberg Dollar Spot Index spiked up 0.8%, and Treasury yields rose across the curve, with the 2-year yield now up 14.5 basis points.