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Market Wire
Payrolls Beat Expectations, But Momentum Weakens

Karl Schamotta February 7, 2020

The American economy generated 225,000 jobs and wage gains accelerated last month, but revisions to previous data releases emphasized a slowdown relative to the last year of the Obama administration.

The construction sector, riding a warm weather-assisted rebound in homebuilding, hired an additional 44,000 workers, while the hospitality and health care sectors each added 36,000. 21,000 new roles were created in professional services and another 28,000 were employed in the transportation and warehousing industry. Manufacturing was the sole area of weakness, losing 12,000 jobs, primarily in the auto sector.

Average hourly earnings rose 0.2% month-over-month, up 3.1% relative to a year prior – slightly ahead of expectations for a 3% gain.

The unemployment rate rose to 3.6% and the participation rate to 63.4% – but the Bureau also applied new population estimates to the data, meaning that the January and December numbers are not directly comparable.

The positive print helped complete a trifecta of positive reports this week, with stronger-than-forecast ADP payrolls and continuing claims numbers lifting consensus estimates well above the 165,000 mark before the release.

But. Annual benchmark revisions showed the economy created roughly 514,000 fewer jobs than initially estimated between April 2018 and March 2019. 2.1 million are believed to have been added for the whole of 2019 – well down from the 2.35 million posted in 2016.

This is sufficient to suggest that the labor market is losing momentum, and has triggered some pressure on the US yield curve as odds on another Federal Reserve rate cut are modestly enhanced. The dollar is trading slightly lower.

In Canada, 34,500 positions were added in January, beating consensus expectations for a 17,500-position gain. Most of the headline increase originated in the public sector, with 21,300 new roles added – but, defying expectations for a trade war-related slowdown, the manufacturing sector grew by 20,500 positions.

The unemployment rate ticked down to 5.5% and wage gains rose to 4.4% – putting a good head of steam behind the country’s consumption engine.

Fixed-income traders had pencilled a Bank of Canada interest rate cut in for the third quarter ahead of the release, and this bet looks likely to stay intact – there is little in the fundamental data to suggest that an earlier move is justified on anything other than an “insurance” basis.

With the number of newly confirmed coronavirus cases seemingly hitting a peak in recent days, fear continues to ebb in the broader financial markets, but currency traders remain cautious as the economic toll continues to climb. The US dollar, Swiss franc and Japanese yen are seeing oscillations in demand as market participants alternately flee into safe havens and front-run expected stimulus efforts from Chinese and Western authorities – a back-and-forth dynamic that looks likely to dominate as we head into the weekend.

Karl Schamotta
Chief Market Strategist
@vsualst

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