The U.S. economy created 353,000 new jobs in January, nearly doubling economists’ forecasts, highlighting a solid labor market to kick off 2024. According to the Bureau of Labor Statistics (BLS), the unemployment rate was unchanged at 3.7 percent, coming in below the consensus estimate of 3.8 percent. The employment gains were concentrated mainly in health care (70,000), retail (45,000), government (36,000), and social assistance (30,000).
Average hourly wages picked up steam last month, rising to a higher-than-expected 4.5 percent year-over-year and jumping 0.6 percent monthly. The labor force participation was flat at 62.5 percent. Average weekly hours dipped from 34.3 to 34.1.
The financial markets were mixed following the January jobs report, with the leading benchmark indexes seesawing between positive and negative territory. I believe the reason for that was that another report claims that many corporations are laying off people, which indicates that the next month report many not be as rosy. In addition, when they update this report, it may not be as rosy.
“As we step into 2024, the landscape is shaped by stabilizing prices and the anticipation of falling interest rates. It is also an election year, and companies begin to plan for potential policy changes that may impact their industries,” Mr. Challenger said in a statement. “However, these layoffs are also driven by broader economic trends and a strategic shift towards increased automation and AI adoption in various sectors, though in most cases, companies point to cost-cutting as the main driver for layoffs.”
But the sizzling job market could delay a cut in interest rates.
Powell said this week that he and his colleagues could start cutting interest rates this year if inflation continues to fall. Powell cautioned, however, that a rate cut at the next Fed meeting in March is unlikely. It's probably even more unlikely after this stronger-than-expected jobs report, which showed average wages in January rising 4.5% from a year ago.
Although rising wages have not been a big driver of inflation, wage gains at that level could make it hard to get inflation all the way down to the Fed's target of 2%. Before the jobs report, investors had been all but certain the Fed would cut interest rates by May. They're less confident now. Productivity gains could make rising wages less worrisome, though.
Bottom line is that this dramatic increase in jobs has put off the interest rate decrease in March which is disappointing to traders, but it is yet to be seen if this number is not a flash, with employment figures coming in milder in the future. Productivity is corporations becoming more efficient and thus more profitable, which is a good indicator for further market gains.
As I have said in the past, it is all about the quality of earnings for stocks prices to rise. I am not as worried about Fed reducing interest rates even though that would definitely help stocks. Whether they do or not, it is all about earnings going forward. Currently the earnings for the 4th quarter are coming in mostly positive which is why the market is up for the year. When the earnings reports end, we will be looking for positive signs that the inflation is steady to down and that labor growth is moderate to up. But for now, the weather is sunny and markets are healthy.
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