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Jobs Data Defies Expectations

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Fed Cleared For Takeoff

Today’s unemployment report gives the Fed more ammo for the rate hikes they plan to initiate in March.

Even with the unemployment rate ticking up slightly, the underlying data shows laborers able to quickly enter the workforce and find employment.

In our opinion, this likely means we’re settling for somewhere between 4-5 rate hikes this year.

If supply chain congestion continues, we could see the Fed raising rates over 3% in a bid to rein in inflation.

This may take a couple of years but don’t be surprised if they push hard this year.

That makes ETFs like the TBT, which is short U.S. Treasury bonds a nice holding for the next several months.

Conversely, long put options on the TLT, which is long U.S. Treasury bonds, also work.



Jobs Data Defies Expectations

Key Data

  • The U.S. economy added 467,00 jobs in January vs expectations of 150,000, with a massive range of -400,000 to +385,000.
  • Average hour wages increased 0.7% and 5.7% for the year vs expectations of 0.5% and 5.2%.
  • The unemployment rate ticked up from 3.9% to 4.0% as the participation rate increased from 61.9% to 62.2%, the first time it crested 62% in more than a year.

January’s jobs report is here. And with more people entering the labor force and picking up jobs, we saw massive gains across the board.

Breaking Down the Numbers

While many forecasters expected Omicron to weigh on hiring, leisure and hospitality continued to add massive amounts of growth to the economy.

But, the most interesting aspect was the increase in the labor force.

January saw 1.393 million people enter the civilian labor force. Of those people, 1.199 million became employed.

Essentially, anyone who decided to start looking for work found it, hence the uptick in the labor force participation rate. However, the remaining 200,000 people that entered the labor force but didn’t find work are what drove unemployment up 0.1%.

Wage growth cooled from 7% in December but still remained hot at 5.4%. However, that isn’t enough to keep up with the 7% CPI inflation reading from December leading to real wage decreases. And with energy prices continuing to rise, we can’t expect any improvement in the near future.

What wasn’t readily apparent in the data – the unemployment rate for those with less than a high school diploma skyrocketed from 5.2% to 6.3%.

Our Take: This report highlights the severity of the worker shortage.

Folks who entered the workforce were able to quickly find work.

Omicron did hamper hiring for those without education. Yet, it was focused more on seasoned workers as the unemployment rate amongst 16-19 year olds remained flat.

If we’re able to see more folks enter the labor market in the coming months, it will certainly ease hiring pressure facing companies. However, that could slow wage growth which isn’t keeping up with inflation at the moment.

We think companies who focus on employees and are successful at creating an inviting work culture that retains talent will continue to perform well.

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