Jobs Data Leaves Door Open For The Fed
Talking heads from the White House to Wall Street spent most of the week trying to get ahead of the expected bad print for January jobs. Instead, the numbers showed positive job growth much higher than expected. There is a lot of speculation about some annual revisions to the data made by the Bureau of Labor Statistics.
The BLS updated population estimates which affected the numbers for 2021 - namely November and December were each revised higher by more than 300,000 jobs. Investors now speculation that this leaves the door open for the Fed to potentially raise rates by 50 basis points in March instead of the usual 25 basis points. The yield on the 10-year Treasury Bond is now at 1.92% - the highest since December of 2019.
Tech earnings helped fuel the markets last week as both Google and Amazon exceeded expectations. Facebook (Meta) disappointed on Wednesday by reporting a loss in global users for the first time since the company went public. That pushed markets lower on Thursday, but Amazon's earnings blowout steadied the market on Friday.
In other news, Chicago PMI improved for the 3rd consecutive month indicating life in the manufacturing sector for the Chicago region. In fact, both the ISM Manufacturing Index and the Marking Manufacturing PMI were slightly higher than expected last month. In addition to the jobs number, Average Hourly Earnings for workers made the largest jump since July of 2021. Lately, hourly earnings had not been keeping pace with inflation. If the January release of CPI (inflation) this week shows some abatement, the increase in workers' earnings will appear even more important. Both Weekly Jobless Claims and Continued Claims declined week-over-week. Weekly Jobless Claims declined for the 2nd consecutive week and Continued Claims declined for the 1st time in 3 weeks.
Fed members Bowman and Mester speak this week on Wednesday before Thursday's CPI release. Investors will be carefully dissecting their words in order to get a glimpse into the Fed's March rate hike and future rate hikes.
Rising interest rates are the primary focus of the market this morning. However, as we previously noted, the 10-year yield is only 1.92%, which is still historically very low. Until the shipping crisis abates, the Fed will need to carefully walk the tightrope of rate hike policy as we proceed from here.