LIVE MARKETS-Payrolls opening act: Jobless claims, layoffs, labor costs/productivity

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PAYROLLS OPENING ACT: JOBLESS CLAIMS, LAYOFFS, LABOR COSTS/PRODUCTIVITY

Investors on Thursday were treated to a trio of labor market indicators, which together acted as prologue to Friday's keenly anticipated January employment report.

Last week, 219,000 U.S. workers joined the queue for unemployment benefits USJOB=ECI, a 5.3% weekly increase and 6,000 more than analysts expected.

The underlying trend, as reflected by the four-week moving average of initial jobless claims, remains rangebound in the 200,000 to 250,000 range, moving sideways with a slight upward bias.

"Claims were unremarkable ... now that the volatility caused by unusually heavy snowfall in mid January and the wildfires in California has fully worked through the numbers," says Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.

"We continue to think that claims data are artificially low at present," Tombs adds. "Even so, claims remain at unthreatening levels."

Ongoing claims USJOBN=ECI, reported on a one-week delay, rose by 1.9% to 1.886 million, suggesting that it's taking laid off workers longer to find new gigs.

Speaking of pink slips, last month corporate America announced it would lay off 49,795 workers, according to executive outplacement firm Challenger, Gray & Christmas (CGC).

That's a 28% jump from December, but a year-over-year drop of 40%. In fact, it marks the second-lowest January in CGC's records, next to 2022.

Closures, restructuring and market/economic conditions were the top three reasons given. Technology and retail were the hardest-hit sectors.

"Technology firms are being disrupted by AI integration, and many bellwether Tech companies are discussing efficiency and productivity initiatives," CGC says, adding that "the Retail job has fundamentally changed, and with automation and online shopping, these positions require different skills than ten years ago."

Finally, the Labor Department released its preliminary take on fourth-quarter labor costs and productivity.

Labor costs USLCP=ECI, calculated as the ratio of hourly compensation to productivity, rose by 3.0%, marking an abrupt acceleration from Q3's 0.5% increase.

On the other hand, productivity growth lost momentum, coming in at 1.2%, a 1.1 percentage point deceleration.

Lower productivity tends to push labor costs higher.

"An acceleration in unit labor costs is not the kind of result the Fed likes to see as it contemplates cutting rates," says Carl Weinberg, chief economist at High Frequency Economics. "The FOMC will not be urged to cut rates with any urgency by these results, but it will not be discouraged from further easing if other indicators call for less restrictive monetary conditions."

All of the above is a warm-up act for Friday's main event, the Labor Department's January employment report.

Analysts are expecting a sharp, 33.6% plunge in job adds - 170,000 compared with December's blowout 256,000 - but expect the unemployment rate to hold firm at 4.1%.

If we see a significant beat, "it could remove the prospects of any rate cuts this year, and if it's a number much lower, it could raise worries about a weakening labor market," says Gaurav Mallik, chief investment officer at Pallas Capital Advisors.

(Stephen Culp)

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