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The US economy added 353,000 jobs in January, almost twice as many as forecast, in “stunning” figures that led investors to slash expectations for interest rate cut in March.
Economists had expected a 180,000 jobs increase for last month, according to an LSEG survey.
Tom Simons, US economist at Jefferies, described the figures as “stunning numbers” that left him “near speechless”.
Analysts said the figures gave greater weight to the US Federal Reserve’s insistence that it may be too soon to cut interest rates, despite attacks on Fed chair Jay Powell by Republican presidential frontrunner Donald Trump.
After the data’s publication, futures traders scaled back bets that the Fed would cut interest rates in March. Expectations of a cut fell to about 20 per cent, compared with 37 per cent before the report.
“Barring some kind of exogenous shock, this removes the possibility of a rate cut in March,” said Simons of the labour data. “A cut in March would be unthinkable.”
Traders also reduced their bets on interest rate cut in May, putting the odds at around 88 per cent. Before the report, a cut in May had been fully priced in.
Stephen Stanley, chief US economist at Santander, said that although January’s 353,000 jobs figure was “exaggerated by seasonality”, the data was “strong across the board”.
Treasury yields jumped as the markets backtracked on their expectations of early rate cuts.
The two-year Treasury yield, which moves with interest rate expectations, was up 0.18 percentage points to 4.37 per cent.
Powell sought earlier in the week to cool speculation about a March rate cut, warning that it was not the central bank’s “base case”.
“Powell killed a March cut. The jobs number buried it,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.
Late on Friday afternoon, Michelle Bowman, a governor at the Fed, confirmed that the hot US labour market was now one of the main “upside” risks to officials’ hopes that inflation would soon hit their 2 per cent goal.
The tightness in the jobs market “could lead to persistently high core services inflation”, Bowman said, adding that “some businesses continue to report above-average wage increases to compensate for inflation”.
Highlighting the politically charged choice facing the US central bank, Trump accused Powell on Friday of seeking to lower rates to boost President Joe Biden’s electoral chances.
“I think he’s going to do something to probably help the Democrats,” the Republican frontrunner told an interviewer, adding he would not reappoint the Fed chair.
The S&P 500 gained 1.1 per cent on Friday to a record high as a surge in tech stocks helped the market shrug off the change in interest rate expectations.
Meta shares climbed 20.3 per cent higher after the tech giant’s fourth-quarter sales and outlook exceeded forecasts, alongside the surprise introduction of its first quarterly dividend. Amazon rose 7.9 per cent.
Friday’s jobs report by the Bureau of Labor Statistics also showed that US workers’ average hourly wages grew 0.6 per cent to $34.55 — up 4.5 per cent over the past 12 months.
Revised figures in the report indicated that the US had added 333,000 jobs in December, up from a first estimate of 216,000. The figure for November was also upgraded, by a more moderate 9,000 to 182,000.
Some economists suggested that the dramatic gains in January’s jobs figures — a phenomenon that also occurred last year — may have been exaggerated by seasonal hiring.
The seasonal adjustment methodology “has not caught up with the patterns in the real economy”, said Eric Winograd, senior economist for fixed income at AllianceBernstein.
Until now, the Fed had been encouraged by signs that the labour market was cooling down.
Referring to this week’s Employment Cost Index figures, which indicated wage rises were moderating, Powell said on Wednesday that the US was “still a good labour market for wages and for finding a job, but [was] getting back into balance and that’s what we want to see”.
