Ahead of today's payrolls report, we warned that there is the possibility for a lot more "market whiplash" because as Goldman explicitly warned, there is the risk for an outlier strong report in January due to massive seasonal adjustments...
... which when coupled with historical revisions to both the Household and Establishment surveys, could lead to a massive beat. That's precisely what happened when moments ago the BLS reported that instead of the 188K expected number, in January the US created a laughably goalseeked 517K jobs (at a time when mass layoff news hit every 45 minutes), up twice from last month's upward revised 260K and the highest since July 2022!
Of this 517K, service jobs contributed 397K while government jobs adds an additional 74K. As always, leisure and hospitality was one of the reasons for the high print. The sector added the most jobs since September, primarily at restaurants and bars. Yes, the waiter and bartender recoveryTMcontinues apace.
This was note a 6, not a 7 but an 8-sigma beat relative to expectations!
For those keeping track, this was a record 8th consecutive beat relative to expectations.
Even more laughable, the upwardly revised Household survey showed that employment soared 894K in January, the biggest increase since Jan 2022 when it soared over 1 million and with the December 717K surge, employment suddenly gained a massive 1.611 million in the past two months!
The 517,000 January payrolls jump compared with an average monthly gain of 401,000 in 2022. And of course, there were revisions: the change in total nonfarm payroll employment for November was revised up by 34,000, from +256,000 to +290,000, and the change for December was revised up by 37,000, from +223,000 to +260,000. With these revisions, employment gains in November and December combined were 71,000 higher than previously reported.
So what's going on here: Well, as we said yesterday...
.... this would be all about seasonal adjustments and sure enough, that's precisely what happened because while the unadjusted payrolls actually cratered by a record 2.505 million, the seasonal adjustment factor was more than 3 million, the biggest in history!
While payrolls were a ridiculous print, at least hourly earnings grew somewhat in line with expectations, rising 0.3% for the month or 10 cents, to $33.03 - as expected - and up 4.4% Y/Y, just above the 4.3% expected, and down from an upward revised 4.8%.
As the bloomberg chart below show, wage growth is accelerating in some sectors.
More remarkably, after sliding for months, the average workweek for all employees on private nonfarm payrolls rose by 0.3 hour to
34.7 hours in January, the biggest monthly surge since the end of the covid crash. In manufacturing, the average workweek increased by 0.4 hour to 40.5 hours, and overtime increased by 0.1 hour to 3.1 hours.
And while we joked yesterday that the ongoing mass layoffs would prompt the BLS to cut the unemployment rate to a record low if for purely political purposes...
... the joke was on us: according to the BLS, the Unemployment rate really did drop to a record low 3.4% from 3.6% (technically not record, the lowest ever was 2.6% in 1953 but it will do).
Among the major worker groups, the unemployment rates for adult men (3.2%), adult women (3.1%), teenagers (10.3%), Whites (3.1%), Blacks (5.4%), Asians (2.8%), and Hispanics (4.5%) showed little change in January, but it is worth noting that the unemp rate for blacks dropped to a record low, from 5.7% to 5.4%.
Meanwhile, the labor-force participation rate ticked up, to 62.4% from 62.3%: the Fed which has discussed this in the past, will be pleased.
Looking at the composition of the report, job growth was widespread in January, led by gains in leisure and hospitality, professional and business services, and health care. Employment also increased in government, partially reflecting the return of workers from a strike.
Reactions to the report were uniformly shocked: “Extremely hawkish,” said Dennis DeBusschere, founder of 22V Research.“But it is what it is. Maybe some seasonal stuff going on. Or something else that is not in the headline reading. But wow...." Some more reactions;
According to Bloomberg chief rates strategist Ira Jersey, the much stronger-than-expected payrolls report may finally be the data point that convinces the market the Fed won’t be cutting this year.
“As such, we think the long-end range may once again be re-tested with the 10-year Treasury topping 3.75% again, but we think a more pronounced selloff unlikely. Meanwhile a re-test of 4.4% on the two-year note seems possible if 2023 rate cuts are priced out.”
Well no: the market response was predictably risk off, with two-year Treasury yields climbing almost 11 basis points, although as BBG notes this is "arguably a restrained move given this massive jump in jobs." And looking at interest-rate futures, they still don’t fully reflect a 25-basis-point rate hike at the Fed’s March meeting. It’s 22.5 right now. As for the second half, the market is expecting about 40bps of rate cuts by Dec 2023 starting in June.