What economists are saying about the red-hot January jobs report

US payrolls recorded a stunning jump in January despite record numbers of Americans calling work sick as the Omicron variant spread rapidly across the country earlier this year.

The Labor Department reported Friday that nonfarm payrolls jumped 467,000 for the month, an upward surprise from experts’ expectations. Economists polled by Bloomberg predicted payroll growth of 125,000, and the highest forecast was 250,000 more jobs.

Other numbers from this latest workforce snapshot were also strong. The unemployment rate rose slightly to 4.0% but remained close to the pre-pandemic low of 3.9% in December, while labor force participation improved to a rate of 62.2% , the highest level since March 2020, indicating that more Americans were back. entering the workforce after being sidelined by the pandemic.

Additionally, average hourly earnings also saw an unexpected jump in January, rising 5.7% year-over-year, the largest increase since May 2020. On a monthly basis, average hourly earnings increased of 0.7%, above the expected increase of 0.5%.

Responding to the report, economists said fears that the latest wave of COVID could hamper the labor market recovery were grossly exaggerated, and upbeat January numbers signal continued strength in the labor force until at the end of the year. For the stock market, however, the jump in wage growth is supporting an increasingly belligerent Federal Reserve that may be forced to raise rates faster and higher, experts say.

Here are some of the key takeaways from economists’ comments on the latest jobs data:

“Smaller and smaller” economic fallout from COVID

Indeed, economic research director Nick Bunker pointed out that not only has 2022 started well, but the labor market is doing better than initially thought at the end of last year. Payroll gains were sharply revised to 510,000 in December, the Labor Department said Friday, well above the 199,000 previously reported last month.

“Today’s report suggests that while Omicron has had a clear impact on daily life in the United States, the impact on the job market has been less severe than expected,” Bunker said. “As we have seen in the past, the economic fallout from each successive wave of the pandemic has been increasingly weak.”

He added that the trend, along with strong demand for workers, points to solid and continued gains in the labor market for the rest of the year.

“A stronger-than-expected jobs report with consensus at 150,000 and whisper counts down 250,000 as Americans took time off from work due to the Omicron virus. Instead, bond yields are soaring on the rise of 467,000 payroll jobs, which sent stocks down 0.5% on the day,” said Christopher S. Rupkey, chief economist at FWDBONDS, in a note. “It’s complicated because the unemployment rate has risen by a tenth to 4.0% and we’ve been telling you for at least a few months now to ignore the low number of salaried jobs and go with the sharp decline. unemployment rate as a sign that the labor market was strong. Now, this month, ignore unemployment and instead look at the 467,000 salaried jobs. The economy or at least the labor market appears to be weathering this latest storm of coronavirus variants, which means a 25 basis point rate hike by the Federal Reserve is ready and ready to go.

‘Omicron, Schmomicron’

“It is very tempting to argue that the January data means that all danger of an attack from Omicron has passed,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note titled “In one line: Omicron, Schmomicron”.

“We’re a little more cautious than that, not least because near real-time data has been dropping for most of January and is only just starting to recover,” he said.

“The February payroll survey is next week, so the lags between activity and employment suggest that the net change in payrolls between January and February could still be very small or even negative,” he said. he added.

The Labor Department’s January unemployment snapshot follows another measure of the US labor force released earlier this week that signaled a slowdown in the labor market at the start of the year. On Wednesday, ADP reported that U.S. private sector employers cut 301,000 jobs in January, marking the first decline since December 2020 — a worse reading than experts expected. Although the ADP generally serves as an imprecise indicator of what to expect from government employment data due to differences in survey methodology, the company’s report has raised concerns among some economists that the Labor Department data shows a similar story.

“It’s a big positive surprise after the ADP report and earlier rise in jobless claims pointed to a decline in jobs in January,” Fitch Ratings chief economist Brian Coulton said in a statement. a note, highlighting the “particularly striking” rise of 151,000 in leisure and hospitality jobs, the sector most likely to have been affected by the impact of the Omicron variant.

“If Omicron is really burning out…and we’re all now starting to go out to restaurants more…air travel, staying in hotels, all of that should then create a boom in consumer services and with that also will come an acceleration in growth,” Torsten Slok, chief economist at Apollo Global Management, told Yahoo Finance Live.

Coulton added: “This confirms that each successive wave of the virus has a lower and lower impact on activity and labor demand. There is more encouraging news on the labor supply front with the labor force participation rate rising to 62.2% from 61.9% in December, but the further acceleration in wage growth on a monthly basis will cement the Fed’s recent hawkish turn. .”

“The Fed is cleared to take off”

Andrew Hunter, senior U.S. economist at Capital Economics, underscored this premise, saying the jobs report will “inevitably” further fuel Federal Reserve expectations using a bigger 50 basis point hike at the Fed meeting. March, while adding that a sharp slowdown in economic growth in the first quarter could give policymakers a second thought, in a research note titled “The Fed Is Cleared to Take Off.”

Most experts seem to agree.

“January’s jobs report recorded stronger-than-expected job growth, but the jobless rate rose as Omicron weighed on the expansion. The statistical agency that publishes the jobs report has made significant revisions to its data in today’s report to incorporate more comprehensive data sources.After these revisions, the labor market generally appears stronger and closer to the maximum employment definition of the Fed,” Comerica Bank chief economist Bill Adams said in a research note. “The economy is rapidly approaching the Fed’s definition of maximum employment.”

Emily Roland, co-head of investment strategy at John Hancock Investment Management, and Beth Ann Bovino, chief U.S. economist at SP Global Ratings, spoke to Yahoo Finance Live immediately after the earnings release and said shared similar thoughts.

U.S. Federal Reserve Board Chairman Jerome Powell reacts during his reappointment hearing for the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill in Washington, U.S., 11 January 2022. Graeme Jennings/Pool via REUTERS

U.S. Federal Reserve Board Chairman Jerome Powell reacts during his reappointment hearing for the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill in Washington, U.S., 11 January 2022. Graeme Jennings/Pool via REUTERS

“We see this market potentially starting to think about a 50 basis point rate hike in March, which until this report I think was pretty much irrelevant. Clearly the Fed needs to act here,” Roland told Yahoo Finance Live.

“If the Fed sang a song, it would be ‘Ain’t No Stopping Us Now.’ They’re on the move and we think they’ll probably raise rates six times this year, Bovino told Yahoo Finance Live.It seems unlikely in my mind that they’ll move for one in March, although a hike 50 bps rates are definitely on the table for this year,” Bovino told Yahoo Finance Live.

Peter Essele, Head of Portfolio Management for Commonwealth Financial Network, said: “The rise in payrolls came as a welcome sign for the economy and pulled markets down as S&P futures fell slightly. after the report’s release. The increase sent confirmation to investors that rate hikes are imminent, with the first occurring at the March meeting. Treasury futures are now forecasting five hikes in 2022. The The result will be higher borrowing costs and a potential flight into security assets, a necessary measure to help smooth the path of inflation.

On the other hand, Jamie Cox, chief executive of Harris Financial Group, said that while strong jobs data gave the Fed the green light to start pulling out of zero soon, he hadn’t expected a rise of 50 basis points in March and expects the central bank to remain sluggish.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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