January’s US jobs report is surprisingly good

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• The January US jobs report was surprising all around. Non-farm payrolls increased by 517,000 for the month, beating analysts’ estimates of 187,000. The unemployment rate fell to 3.4%, the lowest since May 1969.

• Worried about what the not-so-strong jobs report means for the future of interest rates, US stocks fell broadly on Friday, with all indices posting losses. Asia-Pacific shares ended mixed on Friday, as troubled Indian conglomerate Adani Enterprises managed to close 1.38% higher.

• Amazon shares fell 8% after the company reported earnings. Although both Apple and Alphabet also posted disappointing fourth quarters, Alphabet’s stock slipped 2%, while Apple’s rose 2%.

• Supporter First it was Chevron with a $75 billion buyback. Subsequently, Meta announced its $40 billion plan. Is this a sign that stock buybacks are going to be more common in 2023?

In normal economic times – that is, low inflation, moderate unemployment and slow growth for the last 20 years or so – January’s employment numbers would have been cause for celebration. Whichever angle you look at it, the report shines: Employment grew by 517,000 — nearly three times what analysts were expecting. Unemployment rate of 3.4% – the lowest in more than 50 years. Hourly wage growth of 0.3% – solid, but still moderate over the rest of the year.

Yet the market fell on this news. On Friday, the S&P 500 declined 1.04% to 4,136.48, the Nasdaq Composite snapped its red-hot streak and fell 1.59%, and the Dow Jones Industrial Average slipped 0.38%. True, the indexes may have been reacting to earnings: Apple, Alphabet and Amazon, which in combination have a market capitalization of nearly $5 trillion, turned in fourth-quarter results with more hits than misses. Investors’ disappointment was reflected in the companies’ share prices (though it should be noted that Apple’s shares actually rose 2% after experiencing initial losses), which, in turn, moved through the index.

However, what should certainly be foremost on investors’ minds is how the jobs report will affect the Federal Reserve’s interest rate trajectory. Central bankers have repeatedly stressed that they are looking to economic data to determine how far to hike. The question is, which data set are they prioritizing? We know that inflation, consumption and manufacturing figures have fallen in December. But the January jobs report paints a picture of an incredibly strong labor market that could keep inflation consistently high, especially in the services sector, which saw the biggest gains last month. Fed Chair Jerome Powell has indicated he is focusing on the labor market, which he described as “out of balance” at Wednesday’s post-meeting news conference. Investors betting on a rate pause or pivot could be forced by the Fed to find a new balance as well.

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