Mixed jobs data and inflation concerns leave markets in limbo

Jobs

Three important releases related to U.S. employment came out over the week. The Job Openings and Labor Turnover Survey (JOLTS) showed 7.6M job openings, well below expectations and the prior reading of almost 8.2M. The ADP employment report followed, showing private payrolls increasing by 183,000, above forecasts of 153,000. The most important release of the week was the Bureau of Labor Statistics (BLS) report showing total nonfarm payrolls grew by 143,000, below the consensus estimate of 169,000, and the unemployment rate ticked down to 4.0%. However, there was also a significant revision to December data showing 307,000 jobs were added rather than the 256,000 initially reported, among other revisions making this report a bit noisier than usual.

Although the markets are paying close attention to the headline numbers, it is also important to pay attention to average hourly earnings, which came in at 0.5% month-over-month. This is higher than the 0.3% expected, and will likely keep the Fed on pause for the coming months. Taking a closer look at where job growth is coming from, job growth trends from last year carried through January, but with news regarding massive reductions in federal employees, concerns linger about whether government hiring can sustain its momentum. The federal workforce added 32,000 jobs in January and has contributed over 400,000 jobs in the past 12 months.

Other key economic releases

Although many investors focused on news coming out of the administration surrounding tariffs and the employment picture, there were also several other economic releases. Manufacturing PMI kicked off last week with the release of S&P and ISM numbers, both showing an uptick at 51.2 and 50.9, respectively. Construction spending was also higher than expected at a month-over-month reading of 0.5%. Later in the week, the trade deficit was reported at -$98.4B, higher than expected and likely to be a drag on GDP for the quarter. Additionally, the ISM Services Index was released at 52.8, down from a prior reading of 54.0, signaling a potential slowdown in the services sector. Finally, consumer sentiment was released at the end of the week, showing a sharp drop in the headline index to 67.8 and a significant increase in year-ahead inflation expectations. The survey showed consumers' one-year inflation expectations increased to 4.3%, up from a prior reading of 3.3% and one of the largest month-over-month increases in the past 15 years.

International data showed continued economic struggles. PMIs were released across much of Europe, showing continued contraction. As growth has been weaker, it was no surprise that the Bank of England cut rates again, while maintaining a cautious outlook on further reductions. Finally, China PMIs showed a composite index of 51.1 and a services index of just 51, highlighting the ongoing challenges facing China’s economy.

The week ahead

This week, investors will get fresh data on inflation and consumer strength with CPI, PPI, and retail sales set for release.