**As seen in Risk In The Week report 03/03/23, subscribe at cablefxm.co.uk/reports
The January labour report showed the U.S. economy adding 517K jobs, this was the largest gain seen since July. The headline number surprised expectations, as the median survey had seen 189K. We have notified our readers that economists’ projections have been biased in the U.S. labour market, payrolls did beat the consensus 11 out of 12 months of 2022. The surprise was not isolated to the headline, as the jobless rate ticked lower to 3.4% vs the median forecast of 3.6%. The services sector contributed with 397K jobs vs a prior of 226K, leisure and hospitality added 128K jobs vs a prior of 64K. We’re heading into the one-year anniversary of the start of policy tightening from the Fed, and the labour market is not cooperating.
Even the highest estimate for the January headline was calling for an addition of 320K jobs, meaning that demand for workers is not reflecting signs of policy tightening. While additional activity indicators following the release came in strongly, it is predictable that the market would start shifting into pricing a higher for longer rates scenario. The desk at Wells Fargo said that even after setting aside an unusual warmer January and other seasonal factors, there has been an undeniable momentum in hiring. Analysts now see the February headline coming at 270K, this is 70K higher than the median survey and almost 100K higher than January’s estimate. Wells Fargo will be focusing on a potential slowdown in wage growth to sign a healthier supply and demand balance in the labour market. Economists at CIBC noted that even if the headline comes in line with consensus, the pace would be well above levels to convince the Fed of a slowdown in the jobs market, the outcome would leave the desk expecting the Fed to deliver two additional 25bps rate hikes. As a reminder, the February U.S. labour report is set to be released in line with the Canadian equivalent.
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