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The US economy created 353,000 jobs in January, almost double what was expected, with “stunning” figures leading investors to cut expectations for an interest rate cut in March.
Economists expected an increase of 180,000 jobs last month, according to an LSEG survey.
Tom Simons, US economist at Jefferies, described the figures as “staggering numbers” that left him “almost speechless”.
Following their release, futures traders scaled back bets on an interest rate cut by the US Federal Reserve in March. Expectations for a cut have fallen to about 20%, from 37% before the report.
“Barring some kind of exogenous shock, this eliminates the possibility of a rate cut in March,” Simons said, referring to the jobs data. “A cut in March would be unthinkable.”
Traders also scaled back their bets on an interest rate cut in May, raising the odds to around 88%. Before the report, a cut in May had been fully discounted.
Stephen Stanley, Santander’s chief U.S. economist, said that while the January figure of 353,000 jobs is “exaggerated by seasonality,” the data is “solid across the board.”
Treasury yields rose as markets backed away from expectations of early rate cuts.
The two-year Treasury yield, which moves with interest rate expectations, built on earlier gains, rising 0.19 percentage point to 4.38%.
Fed chief Jay Powell sought earlier in the week to cool speculation about a March rate cut, warning it was not the central bank’s “base case.”
“Powell killed a March cut. The jobs number buried it,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.
The S&P 500 rose about 0.3% in early trading Friday as a surge in technology stocks helped the market shake off changing interest rate expectations.
Meta shares jumped 20% after the tech giant’s fourth-quarter sales and outlook beat forecasts, along with the surprise rollout of its first quarterly dividend. Amazon rose 6.9% in early trading.
Friday’s jobs report from the Bureau of Labor Statistics also showed that average hourly wages for U.S. workers rose 0.6% to $34.55, up 4.5% over the past 12 months.
Revised data in the report indicates that the United States added 333,000 jobs in December, up from an earlier estimate of 216,000. The November figure was also updated, going from 9,000 to 182,000.
Some economists have suggested that the dramatic increases in January jobs data – a phenomenon that also occurred last year – may have been exaggerated by seasonal hiring.
The seasonally adjusted methodology “has not kept pace with real economy models,” said Eric Winograd, senior fixed income economist at AllianceBernstein.
Until now, the Fed had been encouraged by signs of a cooling labor market.
Referring to this week’s Employment Cost Index data, which indicates that wage increases are moderating, Powell said Wednesday that the U.S. is “still a good labor market for wages and for finding work, but [was] find balance and that’s what we want to see.”