February 2, 2024 Headlines

A blowout January jobs report is fueling a sharp selloff in Treasuries, with front-end yields up 15-19 basis points in the initial reaction.

Nonfarm payrolls added 353,000 jobs in January, well above the 185,000 expectation, and the prior two months were revised higher by 126,000 jobs. The unemployment rate held steady at 3.7%, and average hourly earnings were double expectations at 0.6% m/m (4.5% y/y). Despite the unchanged unemployment rate, the household survey painted a different picture, with household employment falling 31,000 and the official labor force shrinking 175,000. However, it’s not unusual to see conflicting data between the two surveys. On the negative side, the average workweek declined from 34.3 hours to 34.1 hours, which takes some of the sheen off the wage growth figures.

Today’s report clearly exceeded expectations, but an important caveat is that seasonal factors/adjustments can have a greater impact in the January reports. The labor market remains strong, but perhaps not quite as strong as this report might suggest. At the same time, markets had gone too far in pricing for sudden economic deterioration implied by the timing and severity of rate cuts in forward/futures markets. While pricing for a March rate cut has firmly reversed, fed funds futures are still pricing a 70% chance of a May cut. Such a decision by the Fed will obviously be impacted by how hot the U.S. labor market remains over the next few months.

Jason Haley
Chief Investment Officer