US jobs growth Report of 353,000 jobs is beyond estimates

US jobs growth Report of 353,000 in januarary

US economy added a huge 353,000 jobs in January 2024, almost twice more than economists’ expectations of a 180,000 increase, according to an LSEG survey. This surprising jump led investors to revise down expectations for an interest rate cut by the US Federal Reserve in March. The impressive job data, described as “stunning” by Tom Simons, a US economist at Jefferies, led futures traders to lower bets on a rate cut in March from 37% to around 20%.

US jobs growth

The strong labor market data supported the Federal Reserve’s view that it might be early to plan lowering interest rates, despite criticism from Donald Trump. After the report, expectations of a rate cut in March 2024 were unlikely, with Simons confirming that such a move would be “unthinkable” based on the labor data.

The impact of the news on the market was clear as traders also adjusted their expectations for a rate cut in May. Before the report, a cut in May had been fully considered in. Treasury yields rose in response to the shifting expectations, with the two-year Treasury yield, reflecting interest rate expectations, increasing by 0.18 percentage points to 4.37%.

Federal Reserve Chair Jay Powell, earlier in the week, had tried to temper speculation about a March rate cut, emphasizing that it was not the central bank’s “base case.” The strong employment data seemed to reinforce Powell’s message, with Robert Tipp, chief investment strategist at PGIM Fixed Income, stating, “Powell killed a March cut. The jobs number buried it.”

Michelle Bowman, a governor at the Fed, noted the tight US labor market as a key “upside” risk to inflation hitting the 2% goal, noting that continous wage increases and above-average compensation for inflation could result from the strong job market.

But, the positive economic news was accompanied by political tensions, as President Trump accused Powell of trying to lower rates to benefit President Joe Biden’s electoral chances. Trump expressed his intention not to reappoint Powell. Despite these political challenges, the S&P 500 rose 1.1% to a record high, with tech stocks, including Meta, making gains after better-than-expected fourth-quarter sales and the announcement of Meta’s first quarterly dividend. Amazon also rose by 7.9% in reaction to the positive market sentiment.

The Bureau of Labor Statistics’ report also showed that average hourly wages for US workers grew by 0.6% to $34.55, representing a 4.5% increase over the last 12 months. Revised data for December showed an increase in jobs from an initial estimate of 216,000 to 333,000, and November’s data were upgraded by 9,000 to 182,000.

Some economists hinted that the dramatic gains in January’s job figures might due to seasonal hiring, noting that the seasonal adjustment methodology might not fully capture the patterns in the real economy. Until now, the Fed had been encouraged by signs of a cooling labor market, as indicated by the Employment Cost Index figures showing moderate wage increases.