The January jobs report disappointed while including substantial revisions to evaluate. Final January PMI data signaled slowing overall economic growth from 2H24 even as Manufacturing moved into expansion. Consumer sentiment fell while short term inflation expectations surged higher. The January Employment Situation summary (February 7) from BLS reported +143k net jobs added in the month. Health care, Retail and Government led the increase. While the increase was well below expectations, the annual baseline revisions in both surveys were very impactful to the longer term context of the report. The Establishment Survey revised the overall number of jobs gained in 2024 by -236k. Most of the reductions occurred between January and October with the post-election months being revised higher. Strikingly the summer months have all been lowered to less than 100k jobs added in contrast with the original more robust estimates. The Household Survey also saw very impactful changes to its control variables. The overall population estimate was increased nearly 3 million people, which drove a flow through increase of +2 million new jobs for the full year 2024. The chart tracking the respective employment level between the 2 surveys closed meaningfully following each survey’s changes. The statistical correlation coefficient between the monthly change in the reports for the 4 years beginning January 2021 tightened from 0.197 to 0.332. As I have stated for some time these surveys have a long term historical correlation of greater than 0.95, which is as I would expect. While the last 4 years are now less random in their correlation following the revisions, the differences between them remains high suggesting that additional methodology errors remain uncovered. The S&P Global January PMI final data (February 5) remained expansionary but at the lowest level since April. Report comments regarding the Services sector report noted, “the survey also recorded signs of softer demand conditions, notably where demand is heavily influenced by changing interest rate expectations, such as financial services. Business optimism has also cooled slightly, which is unlikely to have been influenced to the weather, reflecting some pull-back in the buoyant post-election optimism seen in December. It will therefore be interesting to watch the coming month’s data to see if the post-election honeymoon of improved optimism and resurgent demand has started to wane.” Finally, preliminary UM Consumer Sentiment Index fell sharply for February. Significantly near term consumer inflation expectations surged higher suggesting the current anticipated path for monetary policy may be more complex. In my opinion, the long term price of years of excessive easy money has yet to be fully paid. |
