Weekly Economic Trends and Indicators

The Headline:

According to the Bureau of Labor Statistics (BLS), the U.S. economy added 143,000 jobs in January, which was below expectations. The unemployment rate decreased slightly to 4.0%.

Each year, the BLS revises employment statistics from the previous year to reflect additional data that comes in after the initial release. The benchmark month of March 2024 was revised down by 589,000 jobs. Month-to-month growth was also revised with most months being adjusted up or down by less than 50,000 jobs. The month-to-month growth in the last three months of 2024 was revised upward by a total of 101,000 jobs.

The Details:

As in December, job growth in goods-producing sectors was flat. Manufacturing only added 3,000 jobs in the month. The service-providing sectors added 111,000 jobs. The largest monthly job gains were in retail trade (34,000) and health care and social assistance (66,000). Government added 32,000 jobs. Average weekly hours fell for the second month, and average hourly earnings rose by about 0.48% compared to a 0.25% increase in December.

Local labor market data generally runs about a month behind national data. In the Quad Cities metro area, nonfarm payroll employment rose by 300 jobs to 180,400 on a seasonally adjusted basis. The metro area unemployment rate fell from 5.0% to 4.5%. Locally, total nonfarm payrolls have now recovered about 800 jobs since August.

The Context:

Job growth at the national level, by itself, was about what would have been required to maintain the status quo in terms of expectations for further rate cuts by the Federal Reserve. This was slower growth than November and December, but still respectable.

However, the aspect of the report that had the most impact on the market was the wage increase. With average hourly earnings rising by 0.48%, the 10-year Treasury yield increased by about 5 basis points last Friday morning (Feb. 7) to 4.49%. The University of Michigan Survey of Consumers, which was also released Friday morning, showed year-ahead inflation expectations surging by a full percentage point from 3.3% to 4.3% in January, the highest level since November 2023.

As a result, the probability of further interest rate cuts was viewed to be significantly lower following the news. According to the CME FedWatch, the probability of no rate cut at the next three meetings is 47.2% as of Friday afternoon compared to 35.4% on Thursday.

While the labor market in the service sector remains fairly healthy, the question in the months ahead will be whether or not the goods-producing sector can withstand the headwinds of higher inflation expectations and fewer rate cuts. 

Next week: Inflation update