"The Fed Has To Pay Attention" To This 'Simply Stunning' Payrolls Report
Authored by Peter Tchir via Academy Securities,
A simply stunning jobs report!
The highest estimate for the Establishment number was 300k and the report beat that high estimate, quite handily, coming in at 353k!
Not only that, but we broke a string of downward revisions, by adding 126k in total to the past 2 reports, with the bulk of that revision for the December report! Back to back months over 300k is impressive and is maybe why confidence numbers have been so high?
Simply a stunning number of jobs created (according to the Establishment survey).
Even the Household survey was barely negative (Establishment shows 700k job gains past 2 months, while Household is at -700k) making this report more consistent than prior reports.
Unemployment ticked down, but only because labor participation shrunk by 0.1% - something I don’t like to see, but not a major move.
One “outlier” if you can call it that on this report, is that average hours worked declined from 34.3 to 34.1, which is viewed as a sign of weakness. But that weakness isn’t anywhere else in this report.
Hourly earnings are great if you get earnings! 0.6% on the month, which is the highest since March 2022! If you are worried about inflation, and I am, that is a mildly disturbing statistic. Last month’s annual number was revised up to 4.3% and this month’s annual number topped that at 4.5%! That takes us back to September levels and unwinds a trend of declines. The Fed has to pay attention to this!
If you believe the numbers, and I’m sure I’m not the only person skeptical about the numbers, not only is March completely off the table, the “pivot” talk may have to be walked back.
While the Fed said “data dependent” the market heard “watching the data to know when to cut”. This data, if supported by any signs of inflation (don’t forget consumer spending has remained strong) may force Powell’s hand to backtrack on cut talks. It is premature to think that, but as the wage growth data sinks in, more discussions about the appropriateness of pivot will pop up.
Bottom Line
If you believe the numbers, price in few cuts, start later, and push longer term yields much higher.
I expect only a portion of that move will get priced in, because the numbers are so stunning they are almost unbelievable!
The one thing that gives me a degree of confidence that the numbers might be realistic, is because of the confidence and spending data we’ve been seeing, which has surprised to the upside, but maybe it shouldn’t have been a surprise if jobs are back to plentiful and raises are the norm.