Murky January Jobs Report Will Keep Fed on Hold

The January jobs report did little to help the Fed prepare for its March policy meeting. The US economy added 151,000 jobs last month, slightly lower than expectations; and the unemployment rate edged down to 4.9 percent, the lowest level since February 2008, even as about half a million Americans joined the labor force. That’s progress, but the participation rate (the percentage of those who are in the labor force or actively seeking a job) of 62.7 remains at near 40-years. The broader measure of unemployment, which includes those who are not looking for work or who are working part-time because they can’t land full time positions, held steady at 9.9 percent. There was progress in several industries, which have seen consistent gains over the past year, including retail, food services and drinking places and health care. Manufacturing, which has been mired in a recession and saw essentially no job growth in 2015, added 29,000 new positions in January. The brightest part of the report was wage growth. Average weekly earnings were up by 12 cents an hour, which translated into a 2.5 percent annualized increase, close to a post-recession high.

This report complicates the Fed’s outlook. While job creation is decelerating, wages are accelerating, putting the central bank’s next move in March up in the air. In addition to concerns about a slowdown China, emerging market debt burdens and plunging oil prices, the central bank must now add this mixed message about U.S. employment to its list of “Why we should do nothing in March”.

Even before the January report, Fed Governor Lael Brainard said “Recent developments reinforce the case for watchful waiting.” And New York Fed chief Bill Dudley noted that the world has changed since the Fed’s December confab and “if those financial conditions were to remain in place by the time we get to the March meeting we would have to take that into consideration in terms of that monetary policy decision.”

Some have thought that the central bank made a big mistake by raising rates at the last December. Writing in the FT last week, economist Danielle DiMarino Booth noted, “The Fed had never before initiated a tightening cycle when the manufacturing sector was shrinking” and while employment gains in the final quarter of 2015 looked impressive, “History has shown time and again that labor market data are the most lagging and least predictive indicators.”

While the January data may seem less illuminating about the economy’s future direction, perhaps it’s murkiness makes clear that the Fed will likely pursue its watchful waiting and will skip a rate increase in March.

MARKETS: Investors should be rooting for the Panthers, according to the Super Bowl Indicator. When the winner of the big game comes from the National Football Conference (Carolina), the Dow rises 11.4 percent on average that year. But when the victor is from the American Football Conference (Broncos), it rises just 3.6 percent. Of course like any silly stat, don’t trade based on the outcome of the game…after all, in 2008, after the New York Giants of the NFC defeated the AFC’s New England Patriots, the Dow plummeted 34 percent and in 2013, when the AFC’s Baltimore Ravens won, the Dow soared by 26 percent.

• DJIA: 16,205 down 1.6% on week, down 7% YTD
• S&P 500: 1880 down 3.1% on week, down 8% YTD
• NASDAQ: 4363 down 5.4% on week, down 12.9% YTD
• Russell 2000: 985, down 4.8% on week, down 13.2% YTD
• 10-Year Treasury yield: 1.84% (from 1.93% a week ago)
• Mar Crude: $30.89, down 8.1% on week
• Apr Gold: $1,157.80, up 3.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $1.75 (from $1.80 wk ago, $2.17 a year ago)

THE WEEK AHEAD:

Mon 2/8:

Hasbro

Chinese Stock Market closed for Lunar New Year (all week)

Tues 2/9:

Coca-Cola, CVS, Viacom, Disney

6:00 NFIB Small Business Optimism Index

10:00 Job Openings and Labor Turnover Survey (JOLTS)

President Obama releases FY 2017 budget

Weds 2/10:

Time Warner, Twitter, Whole Foods

10:00 Fed Chair Janet Yellen delivers semiannual testimony on monetary policy and economy before House Financial Services Committee

OPEC publishes monthly oil-market report

U.S. Energy Information Administration releases oil inventory report

Thursday 2/11:

CBS, Kellogg, Pepsico

10:00 Yellen testimony before the Senate Banking Committee

Friday 2/12:

8:30 Retail Sales

Import and Export Prices

10:00 Consumer Sentiment

3:00 Consumer Credit