President Joe Biden issued a statement on Friday celebrating the latest jobs report. They showed “another month of strong wage gains and employment gains of more than 350,000 in January, continuing strong growth from last year,” the report said.
But beneath the surface, these latest jobs numbers may be unhelpful to the president's re-election campaign. That's because they pose not one but two potential risks that could cause a headache in the months leading up to November: the risk of further inflation, but also the risk of recession.
Nonfarm payrolls numbers in January were double what economists had expected. So was the rise in hourly earnings.
These numbers are good for workers and job seekers. But they raise concerns that Federal Reserve Chair Jay Powell's economic treatment has not yet worked the way it's supposed to, and that the economy is in good shape. no Calms him down.
“Wages came in higher by 0.6%, the highest release since March 2022,” Jeff Schulz, head of economic and market strategy at ClearBridge Investments, wrote in a note to clients. “This reading, along with the overall job count, effectively eliminates the March rate cut and should raise new concerns about the possibility of accelerating inflation.”
Context: January's wage rise may not be a warning sign about inflation. this is the reason.
See also: Interest rate cut in March? Even May now seems far away.
You can see this very clearly in the markets' reaction to the data. Futures markets, which bet on future interest rates, have just reduced their bets again on early interest rate cuts. It is also lowering its estimates for interest rate cuts in the second half of the year. If inflation does not stabilize, Powell may have to keep interest rates high for longer.
A month ago, futures markets expected the Fed to cut interest rates by about 1.25 percentage points between now and its September meeting (the last before the election).
Her best guess now? Between 0.75 to 1 pip. maybe.
The market now gives a 10% chance that Powell can cut no more than 0.5 points. Just a day ago, I put this probability at 0%.
Then there's the interest rate that the Fed doesn't control (directly, anyway), but has a greater impact on the economy: the 10-year Treasury note rate BX: TMUBMUSD10Y.
The jobs numbers sent the 10-year bond yield – below 3.9% just moments ago – soaring above 4%.
The 10-year interest rate is not just a critical benchmark for corporate and financial market borrowing; It is also the prime rate lenders use when they set interest rates on 30-year fixed mortgages.
So the latest jobs numbers may help keep mortgage rates high for longer, delaying the day they start to fall. As every owner and buyer in America knows, today's relatively high mortgage interest rates have helped freeze much of the real estate market. Homeowners don't want to give up those large fixed-rate mortgages they held during the pandemic. Many people refrain from selling. The scarcity has helped push up housing prices, sparking a crisis for those trying to buy – especially young people.
This is not good news.
(Donald Trump, by the way, is keenly aware of the importance of interest rates in his campaign. He went on Fox Business on Friday to press Powell to keep interest rates higher, and complained that the Fed chief was “political” and would cut interest rates to help re-elect Biden (Despite Trump's choice of Powell to lead the Fed in 2017).
President Donald Trump has officially nominated Jerome Powell as the next chair of the Federal Reserve, meaning current Chair Janet Yellen will not serve a second term. The Wall Street Journal's John Hilsenrath explains why Mr. Trump decided to choose a new leader for the central bank. Photo: Getty
be seen: Initial market reaction: Very hot
But if the nonfarm payrolls data isn't helpful, so are a very different set of numbers that the Labor Department also released on Friday: those from a second survey, in which the government polls households rather than employers.
Interestingly, these do not show continued labor market strength. They appear weakness.
Households reported employment numbers that fell last month. That jobs number fell by 31,000 in January even on a seasonally adjusted basis (which means taking things like temporary Christmas jobs out of the picture). In fact, the number of jobs has fallen by 714,000 jobs since November, and according to this survey, there are now fewer jobs in America than there were last summer.
More worryingly, the Household Survey shows that full-time employment – a leading indicator of a healthy jobs market – peaked in June. It has since fallen by 1.6 million (again on a seasonally adjusted basis).
Other metrics that often indicate a weak labor market, such as the number of potential workers who have given up looking for a job, also rose.
What's going on? The two surveys are conducted in parallel every month. But they are completely different. The first, the “Enterprise” survey, talks to employers. The other speaks to “households” – workers and potential workers.
ClearBridge's Schulz cautions that while both data series are important, the second survey — households — is sometimes a better indicator forward and, in the past, has been quicker to spot big changes in the direction of the economy. He says it has been consistently telling a more ominous story about the jobs market for a year.
“This difference is worth monitoring, as the household survey has historically been more accurate at inflection points, suggesting that job growth may be less impressive than it currently appears,” he writes.
In other words, if the economy is headed toward a recession this year, you might expect it to show up in the Household Survey before it shows up in the more well-known Enterprise Survey, which produces nonfarm payroll numbers.
be seen: The jobs report is solid, make no mistake. But it may have been amplified by the January impact.
Whether the household survey points toward a recession, or even a recession, is another matter. Most economists believe that the United States will avoid a recession, and that the Fed will succeed in engineering a deflationary soft landing (even if interest rate cuts come later than many had hoped).
The bet still favors the rosy scenario.
But the household survey numbers certainly look strange next to data from the enterprise survey that claims we are living in an unprecedented job boom.
Read more about the Nonfarm Payrolls report:
Soft landing for the economy? What about not landing? The United States is still growing rapidly.
'Explosion! What a way to start the new year: Economists react to jobs report
The US economy showed signs of recovery even before the jobs report was released on Friday
