January Jobs Recap: Ammo for the Hawks – cuts delayed, not cuts denied

The employment report for January quelled fears about a job market that was quickly softening, following last week’s dour job opening and initial jobless claim figures. Payroll gains far exceeded expectations, and the unemployment rate fell to just under 4.3% from 4. 4 % in December . The improvement in the unemployment rate was accompanied by an increase in the labor force participation rate, signaling that the decline was real and not a result of a falling job force. While this print does change our near-term forecast – we no longer are calling for a cut in March – we still think that the labor market is more tenuous than today’s print suggests. Payroll gains continue to be concentrated in private education and healthcare services which added 137k jobs and eight of the 14 sectors registered gains . JOLTS data last week indicated that recruiting intensity continues to decline and a normalization of Beveridge Curve would imply higher unemployment in the coming months – but that is clearly not apparent right now. With the influential Fed leadership firmly focused on arresting any additional labor market weakness, this print should provide ammunition to the hawks advocating for more of a focus on inflation. We think that these underlying vulnerabilities will become apparent in the coming months . Our call for three cuts this year is contingent upon our labor view and that, in the near-term, inflation remains stable and does not accelerate.