Earlier this morning the Bureau of Labor Statistics of the Labor Department released its monthly Employment Situation report for January.
The ES indicates that the economy added a net 151,000 new jobs during the month. That’s roughly the number needed on average to absorb new job entrants, and it’s around the figure being reported each month last summer. However, it falls short of the mammoth job addition figures achieved over the prior four months. And it’s around 40,000 less than the consensus of Wall Street economists.
Revisions of prior months’ data didn’t move the needle much, either. The ES numbers for November were revised up from +252,000 new jobs to +280,000; those for December were revised down from +292,000 to +262,000. That’s a net of -2,000.
Wage growth might be a different story. Over the past year, average hourly wages grew by 2.5%, which is a little better than inflation but not terrific. And it’s not really consistent with a low unemployment rate of around 5%. For January, however, average hourly earnings rose by $.12 to $25.39. Of course this is only one data point, but if sustained would amount to +5.7% annual growth. This could be (stress on the could) an early indicator of rising wage inflation (the only kind that really counts in advanced economies).
S&P futures immediately dropped from a slight positive to a small negative. The dollar spiked up against the euro. My guess is that these are just knee-jerk reactions. If we want to make more of them than that, however, Wall Street’s read would seem to be that the US is finally starting to see strong real wage growth. While that’s good for the economy, it also would mean less worry at the Fed about continuing to raise interest rates. In early going, it would seem the latter is what traders have latched onto.
There’s certainly risk is extrapolating from one data point, especially one that has given false positive signals in the recent past. Traders are likely judging that there’s little chance of the stock market running away to the upside, though, so there’s less risk to making the negative bet than would seem on the surface.
My reaction is that this is giving long term investors a chance to pick through the rubble to find cheap stocks with good long term prospects.