Boost in Treasury Yields Shows Market Reaction to Mixed Jobs Report
Slower job gains are offset by another unemployment rate dip and a tick higher in wage gains.
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We have the January Employment Report, and our view is that the mixed results aren’t likely to alter the Fed’s more cautious stance on rate cuts, especially because of the additional uptick in wage gains.
Combined with the figures we saw in the January PMI reports and other reports of higher prices, from eggs and cocoa to auto, health and home insurance, we’re likely to see inflation data in the next few months show little improvement. That includes the January CPI and PPI reports out next week
Considering the Fed is adamant that it wants to see sustained improvement in the data back toward its 2% target, we continue to question the market’s expectation for a June rate cut. The upward move we’re seeing in 10-year treasury yields in response to Friday morning’s Employment Report suggests we are not alone in that thinking.
Now, let’s see what Friday's rash of Fed speakers have to say. Odds are that it won’t be overly dovish and that could keep the market in check, especially if the 10-year treasury yield inches up further.
Breaking Down January Employment Report
The January Employment Report and the 143,000 jobs it showed being created during the month was slower than we expected following January data earlier this week.
That level of job creation was also far slower than the market consensus of 170,000 and the upwardly-revised December figure of 307,000. Part of that upward revision reflects the annual re-benchmarking we see with the data set, which showed a total of 236,000 fewer jobs being created in 2024.
In looking at those revised figures for last year, we find the pace of job creation accelerated during the last three months of 2024, which makes the fall-off in January that much more noticeable.
However, two counterbalancing factors in the report will not go unnoticed by the Fed or the market. First, the January Unemployment Rate ticked lower to 4.0% compared to 4.1% in December and 4.2% in November. While it's only one data point for 2025, compared to the Fed’s 2025 projection of 4.3%, it doesn’t signal the jobs market is rolling over.
Second, wage growth reaccelerated, rising 4.1% year over year from December’s 3.9% print, which backs up what we saw in ADP’s wage data out midweek. On the one hand, that is a positive for consumer spending prospects, but on the other, it points to inflation pressures in the economy persisting.
