A stronger-than-expected January jobs report has lifted market sentiment, but several economists say the data may not be as solid as the headline suggests. Figures released by the US Bureau of Labor Statistics showed the unemployment rate edging down to 4.3% from 4.4%, with 130,000 jobs added in January — about double economists’ forecasts.
Following the release, futures linked to the S&P 500 rose 0.32% after the index closed flat at 6,941 in the previous session.
Why are analysts skeptical?
Analysts are questioning the report primarily because of sharp downward revisions to prior data and because much of January’s hiring came from health care, raising doubts about whether the gains reflect broad-based strength.
The surprise strength has prompted some economists to question whether the headline payroll figure could later be revised downward. The BLS also revised down its earlier 2024-25 job estimates to 181,000 from 584,000.
“I wouldn’t exhale with today’s job numbers. The job market remains fragile and highly vulnerable,” Moody’s chief economist Mark Zandi wrote on X. He added that without job gains in health care, overall employment growth over the past year would have been far weaker.
Economists at Pantheon Macroeconomics described elements of the January data as “implausible,” pointing to a sharp jump in modeled job creation within health care businesses opening or closing. According to Fortune, they argued the statistical assumptions may be overstating hiring momentum.
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What does this mean for Fed rate cuts?
Despite the doubts, traders appear to be taking the data at face value. According to CME FedWatch, markets now see a 92% probability that the Federal Reserve will keep rates steady at 3.5% in March, with expectations for cuts pushed further into the year.
“The broad-based strength in the January jobs report vindicates our view that the Fed won’t cut under [current Fed Chair Jerome] Powell,” Bank of America analysts said in a note, reported Fortune.
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Others even see the possibility of rate hikes returning if labor market tightness persists. Still, some economists caution that it may be premature to declare a turning point.