January’s jobs report was a hot one. Headline job growth came in at +353k, well above the consensus of +185k and the strongest reading in twelve months. This report showed that demand for workers remains robust. Beneath the surface, we think that this report is consistent with the picture Chairman Powell painted at the January FOMC of strong GDP and cooling inflation.
• The totality of this week’s data aligns with our message of resilient growth and continued disinflation. The market has now gone from pricing in fully 6.5 Fed cuts for 2024 a few weeks ago to 4.75 today, which is still more dovish than our forecast of four cuts.
• That said, we do not think job growth will sustain at current levels. There are a few offsets to consider, including the household survey (-31k and negative for two months in a row) and the fact that January seasonal factors have become noisier since COVID. We also know that companies are laying off more employees this earnings season, so we do not want to over-react to this report too much.
• Wages rose a solid 4.5%, although we continue to see core inflation settling in the mid-two percent range this year. Other important datapoints have looked more disinflationary for labor recently, including the Employment Cost Index (10 basis points below consensus last Wednesday) and the JOLTS quits rate (which provided an early warning signal of labor scarcity when it spiked back in 2021, but is back below 2019 levels today).