LIVE MARKETS-Jobs report deep-dive: Damn the revisions, full speed ahead

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JOBS REPORT DEEP-DIVE: DAMN THE REVISIONS, FULL SPEED AHEAD

The January employment report delivered a heartening array of upside surprises, offering rebuke and rebuttal to recent signs and official commentary that the labor market is softening.

In fact, only folks with reason to be disappointed by this report are those who had hung their hats on near-term rate cuts from the Fed.

The U.S. economy added 130,000 jobs in the first month of the year, USNFAR=ECI, marking an acceleration of 171% over December, and landing 60,000 north of analysts' expectations.

This marks only the second upside surprise in the past 12 months, the first reading north of 100,000 since April, and the most robust monthly gain since December 2024.

Calling the report "economic comfort food," UCF economist Sean Snaith writes, "this report feels more like a security blanket than a wake-up call. It tells us the economy is on solid footing, but it doesn't force the Fed’s hand."

Spelunking below the surface, the services sector was responsible for 79.1% of the 172,000 private sector job adds, with goods-producing and construction headcounts increasing by 36,000 and 33,000, respectively. Government payrolls, on the other hand, were reduced by 42,000.

Even so, a sizable downward revision to last year's job gains (over 860,000 fewer than originally reported) lends some credence to a softening jobs market scenario.

"The great news from last month – twice as many jobs were created in January as expected – could easily be overshadowed by the final revisions," says Chris Zaccarelli, chief investment officer at Northlight Asset Management.

The report also gave markets their first glimpse at January inflation, showing average hourly wages heated up, rising by 0.4% on a monthly basis, rather than repeating December's 0.3% growth per consensus.

Year-over-year, wages increased 3.7%, or 0.1 percentage point warmer than economists' forecasts and a repeat of the prior month's figure.

Obviously, that's well above Powell & Co's average annual 2% inflation target and bodes ill for near-term rate cut hopes, but a consumer with more money in their wallet can't be all bad for an economy that derives about 70% of its growth from consumer spending.

"With the policy rate around neutral, January’s guidance pointing toward patience and the economy chugging along, an extended pause still seems likely," says Oren Klachkin, financial market economist at Nationwide.

The Labor Department's CPI report, due on Friday, will offer a second take on January inflation.

The jobless rate USUNR=ECI also defied expectations by edging down to 4.3%, even as the labor market participation improved by 10 basis points to 62.5%.

That's a neat little hat trick, because when more folks leap into the workforce pool, the unemployment rate tends to creep higher.

The average unemployment duration dropped to 22.4 weeks from 24.1 weeks in November. Any shortening of the amount of time it takes laid-off workers to find new gigs could help reverse souring labor market confidence, which is now at its most pessimistic level since February 2021, per the Conference Board.

Finally, breaking down joblessness by race and ethnicity, unemployment among White Americans inched down to 3.7%, while Black and Hispanic joblessness fell to 7.2% and 4.4%, respectively.

The White-Black unemployment gap narrowed to a still-elevated 3.5 percentage points from a previous 3.7 reading.

(Stephen Culp)

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