January Jobs Report Shocks Everyone – Including the White House

After her pre-emptive damage control at a recent briefing, White House Press Secretary Jen Psaki and the administration hoped for the best and prepared for the worst. Following a solid first year of job growth, the labor market recovery maintained its gains, despite Bidenomics and the Omicron variant rearing their ugly heads. The Bureau of Labor Statistics (BLS) published the January jobs report, and the numbers were better than everyone had anticipated. Looking ahead, is this what the country can expect for the next few months, or is this an isolated incident? The headline numbers may have presented an economy full of sunshine and rainbows everywhere. But some of the hard data in the last few months are still painting a different post-pandemic portrait.

The January Jobs Report

According to the Bureau of Labor Statistics (BLS), the U.S. economy added a stunning 467,000 in January, much better than the abysmal 150,000 gain economists had anticipated. The unemployment rate jumped to 4%, slightly higher than the 3.9% the market penciled in heading into the report. The labor force participation rate climbed to 62.2%, average hourly earnings soared 5.7% year-over-year, and average weekly hours slid to 34.5.

Last month, most of the employment gains were situated in a few industries: leisure and hospitality (+151,000), professional and business services (+86,000), and retail (+61,000). Employment rolls in government, construction, manufacturing, financial services, and mining were little changed.

Bulls vs. Bears: A Fight to the Death

Every time the bulls stage a rebound in the leading benchmark indexes, the bears keep on pushing back. One day, the Nasdaq Composite Index is up 117 points – the next, the tech-heavy index slumps 300 points. How did the financial markets respond to the January jobs data? Well, do not hit the buy or sell button just yet! Here is what happened before the opening bell.

The Dow Jones Industrial Average shed about 200 points, while the S&P 500 and the Nasdaq were flat. Crude oil prices topped $92, and natural gas fell 1% to $4.84. Gold tumbled below $1,800, silver tried staying above $22, and Bitcoin prices popped 3% to above $37,000. The U.S. Treasury market, expecting an aggressive central bank, was green across the board, with the benchmark 10-year yield up 0.07% to 1.903%.

What’s Next?

With the Federal Reserve engaged in quantitative tightening – raising interest rates, unwinding asset purchases, and shrinking the balance sheet – it had been feared that removing this level of support would lead to consequences on both Main Street and Wall Street. The U.S. central bank only got started on this QT campaign a couple of months ago. While the effects are being felt in the financial markets in the form of a sharp correction, they have yet to seep into the employment data.

That said, many market analysts believe that the Omicron variant, which has led to a series of renewed public health restrictions, has had more of an impact on the labor market than anything else right now. From companies terminating unvaccinated workers to consumers fearful of walking out their front door because they might contract COVID, businesses had ostensibly been shedding payrolls since after Christmas, based on the ADP and initial jobless claims data.

Unless the February and March labor snapshots crater, the Federal Reserve is likely to adopt a more hawkish approach to rate hikes. President Joe Biden and the Democrats, meanwhile, will take full credit for all the good but none of the bad that will unfold this year. Whatever the case may be, without regular injections, the junkie – consumers, politicians, or investors – will go into shock and trigger either stagflation or recession.

Is This a Healthy Economy?

The post-crisis economy is perhaps the weirdest environment the American people have experienced. Today, there are more than four million more jobs than unemployed workers. The manufacturing and non-manufacturing purchasing managers' indexes (PMIs) keep sliding. Consumer sentiment is deteriorating. Price inflation is the highest it has been in 40 years, while the cost of everything in the marketplace is up. The stock market has repeatedly witnessed violent swings so far in 2022. A strong jobs report. And yet, the fourth-quarter gross domestic product (GDP) suggested this is the best economy since 1984. Whether it is the cause of Bidenomics or the Powell Putsch, the country is still headed off a cliff without the needed support systems in place.

~ Read more from Andrew Moran.