CIO Notebook: Jobs Remain Strong as Fed Seeks Confirmation

February 02, 2024

We believe strong economic data is driving belief that the Fed will not be forced to cut rates aggressively to support a contracting U.S. economy

January’s non-farm payrolls, released this morning, blew past expectations showing the U.S. economy added +353k jobs versus consensus for a +185k gain. The monthly gains were driven by professional and business services, which added +74k jobs, well above the prior 12-month average of +14k, as well as by retail trade, government and social assistance. Healthcare hiring remains strong, as January yielded +70k new jobs in the industry, compounding the +58k average monthly gain in 2023. The only notable areas of contraction were mining, quarrying, and oil and gas extraction with weather impacts likely partially responsible for these declines.

Hours worked ticked down for the second month in a row, declining by another -0.2 hours to 34.1; hours worked now stands -0.5 hours lower than where it started the year in 2023, which could represent a decline in demand, an increase in productivity or a mixture of both. The unemployment rate remained steady at 3.7% versus expectations of 3.8% while the participation rate remained at 62.5% for the second straight month as well.

Most notable was the reacceleration in wage growth. Average hourly wages rose by +0.6% month-over-month and +4.5% year-over-year—both higher than expectations of +0.3% and +4.1%, respectively. Combining the increase in wages, strong January payrolls print, and meaningful upward revisions in the November and December data resulting in another +126k jobs added in 2023, we believe there is now even stronger evidence that the Federal Reserve (Fed) will not be forced to cut rates aggressively to support a contracting U.S. economy.

Not surprisingly, the CME FedWatch Tool now reflects that the probability of a rate cut in March has moved from 46.2% to 17.5% following Wednesday’s Fed meeting and today’s job data. The 10-Year Treasury yield moved back up to 4%, while U.S. equities opened the day flat to lower, offsetting the early gains in Meta Platforms and Amazon following strong earnings reports.

Today’s pivotal data release is the first of several ahead of the next Fed meeting in March. While investors are admittedly adjusting to the potential for a lower number of rate cuts this year than had been priced in up to this point, the resiliency of the U.S. labor market and the continued push to hire workers could act as a counterbalance to the depletion of excess savings and the pressure of higher-cost consumer debt. Our view is that the Fed will cut rates this year in response to the disinflationary trend, which we believe will remain intact. However, we acknowledge that the path to get to our anticipated endpoint could be bumpy. Because of this, we remain focused on positioning our client portfolios to capture the opportunities available in this period of transition.


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