Key takeaways from the January Payrolls report

The January payrolls number was weaker than expected at 143k, vs a reading of 175k. However, to counteract the downside surprise in the NFP number, the unemployment rate fell to 4% from 4.1%, and average wage data jumped by 0.5% on the month, to 4.1%, the market had been looking for a decline to 3.8%.

This tells us a few things

January job creation could have been impacted by the fires in California and from uncertainty  caused by the change in administration in the US. President Trump’s tariffs and his new economic policy could have meant that employers sat on the sidelines in January, and we will need to see if that continues this month.

There were large upward revisions to jobs data for November and December. The December jobs figure was revised up to 307k from 256k originally. This may have been caused by seasonal factors, and by employers front loading hiring before the change in government.

After such a large increase in payrolls in December, a decline in January is to be expected.

The detail of the report is also worth noting. Government created 32k jobs last month, which is roughly in line with the 38k monthly increase of the last year. Elon Musk has been cutting Federal government budgets this week and there have been notable layoffs, so this number could be lower in the coming months and this could act as a drag on employment and NFPs down the line.

January also sees the annual benchmark revisions to the BLS data from April 2023 – March 2024. The number of jobs created was revised lower to 166k from 186k monthly increase before the revision. This is not a sizable decline and suggests that the US labour market remains strong, with only a mild softening.

We do not think that the labour market data shifts the dial for the Fed.

Although the headline number is weaker than expected the details within the report remain strong.

The market reaction has been muted so far: the dollar has given back a fraction of today’s gains, but the dollar index remains higher on the day. The S&P 500 futures are also pointing to a slightly higher open later this afternoon, US Treasury yields are higher across the curve, which may support the dollar later on Friday.

Commodities are also moving on the back of this report. Oil has backed away from the highs of the day, but it remains supported and is clawing back some of this week’s losses. $74.10 looks like good support for now. The gold price is higher today, but it has backed away from an intraday high at $2870, and is currently trading below $2860, as this report supports the Fed remaining on hold and taking a gradual approach to rate cuts. Gold is also being driven by tariff fears, and news flow has been quiet about this on Friday. However, if Trump announces further tariffs this weekend, then the gold price could move higher.