Jobs Report Not Too Hot, Not Too Cold

Stocks opened mixed this morning as traders parse fresh data on the economy (see below). The rally in place since Halloween seems to be losing some momentum and many investors think we could see a minor correction in the near-term. Optimism is prevalent judging by the VIX Index and AAII Investor Sentiment Bullish survey, and that’s a typical set-up for a correction.

The US economy generated 275,000 new jobs last month, which was better than the roughly 200,000 anticipated. But January’s initial tally of 353,000 had to be revised sharply lower to just 229,000. The report offered other hints of slowing momentum in the job market. For example, the unemployment rate ticked up to 3.9%, the highest in almost two years. And wage growth slowed to 4.3%. Bloomberg News concludes that the labor market is “cooler, yet resilient.” And that’s important because it “suggest[s] the economy will keep expanding without much risk of a reacceleration in inflation.” That’s the Goldilocks scenario we’ve been looking for.

Incidentally, throughout 2022 & 2023 the job market was a constant target of fear mongers warning us of impending doom via mass layoffs. Obviously, that was, and continues to be, all wrong. For instance, the uptick in unemployment last month did not result from layoffs, but rather from more people entering the job force but apparently not finding work right away. Coming out of Covid, the job market was far too tight and what we’re seeing now is simply a gradual return to more normal conditions.

Bloomberg News ran an article today titled, “Credit Markets Are Acting Like Easy Money Era Never Ended.” The assertion is that even though borrowing rates are far higher than they were two years ago, we haven’t yet seen the expected wave of loan defaults and corporate bankruptcies. We use the term “credit” in reference to the health of lending markets in general, and more specifically the “junk” bond market. Can companies with lower credit ratings access loans, and are they defaulting on existing loans? Despite the Federal Reserve’s campaign to make interest rates “restrictive” to growth, the answers to those questions still seem to be yes, and no.