While the headline jobs number reported on Friday was a great surprise - at 227,000 it was nearly 50,000 more than expected - the internals were more mixed. Just when we hoped that wage growth was on the cusp of accelerating, it disappoints us again, rising just 0.1 percent month over month and 2.5 percent year over year.
Yes, the headline job jump was impressive but the much more volatile household survey saw a jobs decline of 30,000 and the unemployment rate rose to 4.8 percent. And to see a sharp decline in those working in the key age cohort of 25-54 was a bummer. On the other hand, it was good to see the participation rate tick higher.
Maybe it's this mixed bag of information that has the U.S. 10 year yield falling by 5 basis points in response from where it was just before the release to 2.44 percent as of this writing. The 2 year note yield, very sensitive to expectations on Fed policy, is lower by three basis points. Smoothing out the job figures has the three month private sector job gain at 193,000 versus the six month average at 180,000 and the 12 month at 182,000. Job growth averaged 213,000 in 2015 and 239,000 in 2014.
So yes, this headline number was good to see but the pace of job growth is still one of moderation which is typical in the late stage of a recovery.
It's easy to attribute the solid job growth seen in January to optimism with the new president and hopes for a more business friendly policy. While I'm hopeful for lower taxes and a reduced regulatory burden, is it fair to believe that businesses acted so fast before even seeing what any of the fiscal details really are?
I'm not so sure as the upcoming tax reform is really complicated in that there will be winners and losers. The winners will fully capture the decline in corporate tax rates while the losers could be those that import a large majority of their cost of goods sold due to the border adjustment tax if the U.S. dollar doesn't rally to offset the tax. I can almost promise that no importer is making aggressive business decisions, especially on the jobs front, until they see what gets passed with the border adjustment tax. Those that export on the other hand, should be excited.