January's 'Wow' Jobs Report: 9 Economists On What's Next For Fed Rate Cuts, Stock Market

The January jobs report delivered a stunning testament to the enduring strength of the U.S. labor market, surpassing even the most optimistic forecasts and complicating the Federal Reserve’s interest rate trajectory.

Non-farm payrolls expanded by a robust 353,000 in January, significantly outpacing December’s revised figure of 333,000 and almost doubling the anticipated 180,000 job additions. This surge in employment is a clear signal of a labor market that not only remains resilient but is also thriving amid economic uncertainties. The substantial upward revision of December’s data by 117,000 further underscores the momentum within the job sector.

Wage growth, too, exceeded expectations, with average hourly earnings rising by 0.6% month-over-month – translating to an annual increase of 4.5%, against predictions of a 0.4% monthly and 4.1% yearly rise. This acceleration in wages, while beneficial for workers, may raise concerns over inflationary pressures, potentially influencing the Federal Reserve’s policy decisions.

The unemployment rate held steady at 3.7%, near historic lows, defying forecasts that it would edge up to 3.8%.

Analyst Insights: January Jobs Report Surpasses Expectations

The January jobs report has sparked a wide range of reactions from economists and market experts. Here’s a closer look at their perspectives, incorporating their original quotes or key phrases for a nuanced understanding of the implications:

Mohamed El Erian, president of Queens' College, Cambridge, and Gramercy Funds Management Chair, observed that the robust job growth challenges the narrative of economic weakening, suggesting, "The economy hasn't weakened as people betting on March rate cut had thought."

He added that Friday’s “wow” U.S. jobs report represents good news for Main Street, less so for Wall Street and the Federal Reserve.

Alex McGrath, chief investment officer for NorthEnd Private Wealth, concluded that the data likely puts an end to speculation about near-term rate cuts, arguing, “I think we can officially kiss a March rate cut goodbye.”

Joe Brusuelas, chief economist at RSM, offered a historical perspective on the labor market’s strength, “Remarkable, resilient, and robust…an American unemployment rate below 4% for twenty-four consecutive months for the first time since 1967.”

Jeffrey Rosenberg, Blackrock systemic multi-strategy fund portfolio manager, acknowledged the robust labor market, while also pointing out the impact of seasonal factors, “This is a very strong labor market, but be aware that a lot of seasonality should be accounted for the January payroll number.”

Independent macro economist Andreas Steno Larsen critiqued the seasonal adjustments but couldn’t overlook the underlying wage growth concern, stating, “The headline NFP number is skewed by terrible seasonal adjustments…but the wage growth is concerning.”

Another critique came from Peter Schiff, CEO of Euro Pacific Capital, who expressed skepticism about the government’s report compared to private sector data, asking, “Do you believe the Govt. or the private sector?” Schiff’s skepticism questions the reliability of the reported 353,000 new jobs against a backdrop of disappointing private sector reports.

Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report, analyzed the market implications, noting potential short-term consequences, “The short-term downside is higher bond yields, reduced Fed rate cut expectations and possibly stock market volatility.”

Quincy Krosby, chief global strategist for LPL Financial, highlights the shock value of January’s job growth figures. “No matter how you distill the payroll’s surprise…headline number of 353,000 new jobs defies expectations.”

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, noted the economic strength reflected in the job growth, asserting, “The economy is still producing at a high level…so there isn't anything at the moment to derail this bull market.” Zaccarelli sees the 353,000 job increase as a bullish signal for the economy.

Market Reactions

Following the release of the jobs report, market participants adjusted their expectations for Federal Reserve rate cuts in 2024, significantly reducing the likelihood of easing in the near term. The probability of a rate cut in March dropped to just 20%, while expectations for a reduction at the May Fed meeting decreased from 94% to 72%.

As a result of the jobs data, traders now anticipate only five rate cuts throughout the year, a revision down from six expected before the report’s publication.

In response, Treasury yields soared, with the 10-year yield surging back above 4% and bonds fell, with the iShares 20+ Year Treasury Bond ETF TLT down 1.7%.

In the stock market, there was a modest uptick at Friday’s open, albeit with some gains trimmed from earlier premarket levels. The SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ, which is more focused on technology stocks, were poised to mark their 13th weekly gain in the last 14 weeks, indicating continued market optimism despite adjustments in rate cut expectations.

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