Why a Solid January Payrolls Gain Created Such an Unusual Market Reaction

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The jobs picture is already looking up again in America. After ADP posted a shockingly higher than expected payrolls figure for January, the solid jobs news was more than confirmed by the U.S. Department of Labor in its key employment situation report. Friday’s key report from the Bureau of Labor Statistics (BLS) showed that January’s nonfarm payrolls rose by 227,000 and private sector payrolls were up by 237,000.

These numbers blew out even the estimates that were revised higher after ADP’s strong report. Bloomberg was calling for 175,000 jobs to be added in the nonfarm headline number and 180,000 on the private sector number. Their Econoday ranges showed that the highest formal estimates were 195,000 on the headline nonfarm payrolls and 188,000 on the private sector reading.

What should stand out about this strong report is that there was a surprising reaction in stocks, bonds and gold to Friday’s news. Stocks surged, while longer-term bond yields remained tame. And gold posted a small gain rather than a drop. Some of this data will support the Trump bump and the post-election rally, but other parts might make the data stand alone rather than being tied to greater expectations.

The average workweek was flat at 34.4 hours, and the average hourly earnings was up 0.1%. The only issue here is the average hourly earnings retreat of 0.3%. The annual change in January’s average earnings fell back to just 2.5%. Still, on the monthly reading, the hourly earnings gain was just by four cents to $21.84. December’s pay raise gains were also revised lower.

One issue that is always hard to explain in detail is that the official unemployment rate ticked up to 4.8% in January. Bloomberg’s estimate was 4.7%, and December’s level was left unchanged 4.7%. This tick higher was due in part to the labor force participation rate rising two-tenths of a percent to 62.9%. Another issue was that number of available workers was up by 183,000 in January to some 13.4 million.

Construction added 36,000 jobs and financial services added 32,000 jobs. Retail trade employment increased by 46,000 and professional and technical services rose by 23,000. The employment in food services and drinking places rose by 30,000, and health care rose by 18,000 payrolls.

There is a slight improvement in the number of long-term unemployed, which refers to those who have been jobless for 27 weeks or more. This was 1.9 million people, and it accounted for 24.4% of the unemployed. Over the past year, the number of long-term unemployed was shown to have declined by 244,000.

The number of persons employed part time for economic reasons was 5.8 million. These people would have preferred full-time employment and were working part time because their hours had been cut back or because they were unable to find full-time jobs.

Also shown was that 1.8 million persons were marginally attached to the labor force in January, down by 337,000 from a year earlier. Among the marginally attached, there were 532,000 discouraged workers in January.

Friday’s jobs report came with an unusual reaction, with weaker average pay maybe capping some of the inflation worries. The DJIA was up 167 at 20,052 and the S&P 500 was up almost 15 points at 2,295 in late morning trading. The yield on the 10-year Treasury was down three basis points to 2.44%, and the yield on the 30-year Treasury was down one basis point to 3.07%. Even gold was up $2.63 at $1,216.34 per ounce after the news.