The Market Today

Adjustments and Revisions Boost January Jobs Data

by Craig Dismuke, Dudley Carter


Payrolls Jump on Revisions to Seasonal Adjustments: Nonfarm payrolls unexpectedly increased 467k in January, well above expectations as seasonal adjustments outweighed Omicron impact. The Establishment survey tabulates payrolls based on the number of persons receiving pay during the monthly reference week. The reference week for report covered January 9 to January 15, the week which saw, by far, the largest number of confirmed COVID-19 cases of the pandemic. This should have directly affected non-salaried workers out on non-paid sick leave although it does not appear that it did. However, BLS applied the largest seasonal adjustment factor on record to the monthly tally, adding 3.29mm payrolls to the unadjusted figure.  According to BLS, “Now that there are more monthly observations related to the historically large job losses and gains seen in the pandemic-driven recession and recovery, the models can better distinguish normal seasonal movements from underlying trends. As a result, some large revisions to seasonally adjusted data occurred with the updated models; however, these monthly changes mostly offset each other.”  In addition to the large January seasonal adjustment, BLS revised up the November and December payroll tallies by 709k.  December’s disappointing 199k result now looks relatively strong at 510k.  Despite all of the adjustments, the Establishment survey still shows 2.875mm payrolls remaining lost from the pandemic. Going forward, the unusually large seasonal adjusted applied in January will presumably reverse in the February report, creating a hurdle to a strong report. As a result, the last labor report before the Fed’s March 16 policy decision is likely to, at the very least, remain shrouded in uncertainty.

Unemployment Rate Increases from 3.9% to 4.0% but Participation Jumps after Revisions: In the Household report, the unemployment rate rose from 3.9% to 4.0%.  On a month-over-month basis after the annual population revisions, the labor force declined 137k, employed persons declined 272k, unemployed persons increased 135k, and people not in the labor force increased 231k.  However, the population revisions added 973k persons including 1.53k more people reporting as in the labor force, 1.47mm more reporting as unemployed, and 557k fewer reporting as not in the labor force.  The large decline in those reporting as not in the labor force, driven by an increase in female participation, pushed the participation rate up to 62.2%.

Omicron Impact: Omicron did have an impact on the labor market, although that impact is indiscernible in either the Establishment or Household reports given the adjustments and revisions.  The number of persons employed but not at work due to illness was 3.62mm (Household survey), doubling the record-high back to 1976 and 2.7mm more than an average month.

Average Hourly Earnings Gain as Hours Worked Decline: Average hourly earnings jumped 0.7% MoM as employees were unable to work as many hours, likely related to health factors. Average weekly hours worked fell from 34.7 to 34.5 despite the labor shortage reported in other reports.  The increase in earnings, while likely exaggerated, pushed the annual rate of gain up from 4.9% to 5.7%.  If not for the noisy nature of the January data, this would likely add to Fed concerns and increase the odds of a 50 bps hike in March.


ISM Services Index Slips in January as Omicron Exacerbates Existing Headwinds: The ISM’s Services Index came in close to expectations, pulling back from 62.3 to 59.9 in January. While still solid by historical standards, the headline PMI has dropped 8.5 points over the last two months from an all-time high in November, with January’s reading signaling the slowest pace of activity for the services economy since February 2021. A sharp drop in the production index, from 68.3 to 59.9, accounted for most of the decline. The new orders index edged down 0.4 points to an 11-month low while employment cooled 2.4 points to 52.3, its lowest reading since a contraction in June. The supplier deliveries index inched up after a sharp drop in December. The spread of Omicron is expected to have impacted activity around the turn of the year, particularly for services industries. However, the comments section was chock full of evidence that persistent shortages of materials and labor continue to create headwinds for activity and keep upward pressure on prices.


Tech Led Stock Rout, Global Rates Jumped After Central Bank Decisions: The market’s dovish initial response to the ECB’s decision gave way to a much more hawkish interpretation during President Lagarde’s press conference. Data earlier this week showed Eurozone unemployment fell more than expected in December to a new all-time low and that inflation accelerated unexpectedly in January to a new all-time high. Nevertheless, the ECB voted to keep policy unchanged less than an hour after the Bank of England hiked rates again and started quantitative tightening. While U.K. yields jumped sharply, European yields rose only modestly. The two quickly converged, however, as President Lagarde said there was “unanimous concern” about inflation and failed to repeat her line from December that a rate hike this year was “very unlikely.” Germany’s 2-year yield jumped 12.1 bps to -0.36%, overtaking the 11.4-bp increase for the U.K.’s 2-year yield. Italy’s 2-year yield surged more than 20 bps. The significant yield increases across the Atlantic kept upward pressure on Treasury yields. Exacerbating earnings-related weakness for equities, the 2-year Treasury yield rose 4.2 bps to 1.20%, its highest level since February 2020. The 5-year yield led with a 6.3-bp increase to 1.67%, its second highest level since January 2020. The 10-year yield rose 5.6 bps to 1.83%. In the aftermath of weak Facebook earnings and ahead of Amazon’s report, the Nasdaq tumbled 3.7%, its worst rout since September 2020. The S&P 500 slumped 2.4% in its biggest decline since last February.

After-Hours Jolt from Amazon Surge Fades and Yield Curve Flattens before the Jobs Report: Stocks, however, immediately turned higher in after-hours trading as shares of Amazon jumped sharply following a surprisingly strong earnings report. The company blew away earnings expectations and margins held up better than expected amid rising costs. And while the current-quarter net revenues forecast came up short of expectations, the company announced that it was increasing the annual cost of a Prime membership by $20 to $139 and showed growth in its web services business was strong. Shares of Amazon soared in after-hours trading and were more than 12% higher ahead of U.S. trading. Following an initial jump of as much as 1.3% on the Amazon news, futures on the S&P 500 had erased most of that gain and were 0.2% higher ahead of the U.S. jobs report. Treasury yields were mixed at 7:25 a.m. CT and the curve was flattening. The 2-year yield rose 1.3 bps to 1.21%, a new cycle high, while the 10-year yield slipped 1.8 bps to 1.81%. After the shockingly strong payroll results, stocks turned negative and Treasury yields rushed to new session highs. At 7:45 a.m. CT, the 2-year yield was 8.4 bps higher at 1.28% and the 10-year yield had added 6.7 bps to just below 1.90%.

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