Surprising Job Surge: The January Employment Report | Episode 098 | 02-02-2024

In this episode of Markets with Megan, Verdence Capital Advisors CIO Megan Horneman provides a comprehensive analysis of the January Employment Report. The report surpassed expectations, revealing the addition of 353,000 jobs to the US economy, exceeding the highest estimate of 300,000. Megan looks into the sectors driving this growth, with a focus on private education, healthcare, professional business services, and trade/transportation. The report highlights a positive trend in women returning to the labor force, contributing significantly to the overall job increase. Despite a steady unemployment rate of 3.7%, Megan mentions key factors the Federal Reserve will scrutinize, including a notable 4.5% increase in average hourly earnings on a year-over-year basis. Megan discusses the market's reactions, emphasizing the impact on bond yields and equities, as well as addressing potential concerns related to average hours worked and underemployment rates. For questions or comments please reach out to podcast at Verdence dot com.

Watch today's episode here: 

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan. It's Friday, February 2nd and today we got the January Employment Report. This has been one of the most anticipated economic data pieces that we've gotten this week and I did not see this coming, and I'm not alone on this. This report blew away the expectations. The US economy added 353,000 jobs in January. The highest estimate that was out there for the economists that are pulled by Bloomberg was 300,000. So this was a blockbuster report. When you look at the headline, this is not something that's abnormal for January. Let's just keep that in mind. There is some seasonal noise in January reports, but we can't deny the backward-looking two months. There are 126,000 net revisions positive for job creation.

Now let's dig into this report. The jobs that were created were primarily focused in private education and healthcare, also professional business services, as well as trade and transportation. Another good thing about this report was women led the increase. So this was an area that we focused on, which was a structural issue after the pandemic, women coming back into the labor force and we're seeing them come back and the hiring has been strong. So all of the age groups were up and they were about 198,000 of those jobs.

Now what's the Fed going to look at? Again, good report, solid report. We really can't pick apart too many negatives in this report. The unemployment rate stayed about 3.7%, but the Fed's going to be looking at a couple things. First of all, the average hourly earnings. They did tick up to 4.5%. On a year-over-year basis. This was a 0.6% jump. That's a big jump in wages. This is something the Fed's going to focus on. This is also why we've seen the expectation for a March rate cut basically off the table. One of the other things that we look at is a leading indicator for jobs, though and again, this is a one-month report, so we'll see if this continues to be a trend but the average hours worked by employees. This is something that has historically been a leading indicator for the labor market, because if you're reducing the amount of hours that your employees work, you do that first, before you then ultimately do layoffs.

We saw this fall pretty precipitously. Actually, this is now the lowest level that we've seen since March of 2020, when the pandemic shut down the world. We also saw the under-employment rate, so this is people that want to work full-time but are working part-time because of economic reasons. That did tick up by a tenth as well. So good report. We can't really put too many holes in this. Obviously, the markets reacting with the bond yields are higher because the Fed rate cuts are being pushed out to later this year. Equities have turned around on this. The initial reaction was for equities to go lower, but from some earnings perspective and individual company news that we got this week, we're seeing the markets actually marginally higher now as we end this week. That's all we have for today. If you have any questions or comments, please reach out to podcast at Verdence dot com. Thank you.