2/2 - Weekly Economic Highlights

The week was dominated by employment-related data with market participants also focused on Wednesday’s Federal Reserve meeting.

The Job Openings and Labor Turnover report on Tuesday showed an unexpected rise in job openings in December, from an upwardly revised 8.9 million in November to 9.0 million representing a healthy ratio of around 1.5 jobs for every unemployed individual. The Conference Board’s January measure of Consumer Confidence also came in at the highest level since the end of 2021, a reflection of the current strength in the labor market and falling inflation.

The Federal Reserve kept its policy rate on hold at 5.25-5.50% on Wednesday and while Chair Jay Powell readied the market for cuts this year, he poured cold water on market expectations for the first in March. Powell cited the need for greater confidence that inflation would remain sustainably below the Committee’s 2% target while the economy continues to expand at a solid pace.

Manufacturing survey data continues to show improvement with Thursday’s release of the Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for January reaching its highest level since October 2022. A continued rebound in manufacturing may go some way to offset the gradual slowdown in the service sector of the economy.

We rounded off the week with the highly anticipated employment report which showed nonfarm payrolls jumped by 353,000 in January, well ahead of the market consensus estimate of 185,000. In addition, December payrolls were revised up from 216,000 to 333,000. The unemployment rate remained unchanged at 3.7%. Average hourly earnings also ticked up to 0.6% month on month, 4.5% year on year. While seasonal adjustments and bad weather (reducing hours worked) may have impacted these numbers, the labor market remains unequivocally strong, which supports the Fed’s more patient stance on reducing interest rates this year.

At the time of writing, the 2-year Treasury yield was trading around 4.35%, broadly unchanged on the week, and the 10-year 4.00%, down by 0.15%. Despite the string of solid economic data, concerns have resurfaced in the banking sector regarding loan exposure to commercial real estate which kept downward pressure on yields.

S&P Global Services PMI, ISM Services Index, US Trade Balance, Consumer Credit Balances, Initial and Continuing Jobless Claims

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