2/4- Weekly Economic Highlights

The January employment report surprised to the upside today with US nonfarm payroll growth of 467,000 in the month versus the consensus forecast which called for an increase of only 125,000 due to omicron concerns. In addition, November and December payrolls were revised higher by a total of 709,000, although much of this can be attributed to seasonal adjustments. On a trailing 3- and 6-month basis, payrolls increased by an average of approximately 540,000 jobs per month, which is significantly higher than the average job gains of about 193,000 per month in the five years prior to the pandemic. The unemployment rate ticked up to 4.0% in January from 3.9% in December due an increase in the labor force participation rate, which improved from 61.9% to 62.2%, but is still below the pre-pandemic rate of 63.4%. The underemployment rate improved from 7.3% to 7.1%, while average hourly earnings jumped 0.7% month-over-month and 5.7% on a year-over-year basis in January. The overall strength of the report suggests that the US economy is at or near full employment, although many workers still remain on the sidelines or have dropped out of the labor market due to the continuing health crisis and retirements. 

Supply chain issues and omicron weighed on the ISM reports this week, but they still remain in expansion territory. ISM Manufacturing came in at 57.6 for January, slightly above expectations but below the December level of 58.8. The ISM Services Index was 59.9 for January, above the consensus expectation for 59.5 but lower than the 62.3 level from December. The relatively resilient readings suggest that the US economy has become more adaptive with each successive wave of the pandemic.

The Fed is widely expected to begin hiking short-term interest rates at its March 16 meeting. We are expecting 3-4 rate hikes this year, with asset purchases winding down in March and passive balance sheet reduction signaled to begin sometime around mid-2022. Beyond that, we expect the Fed will remain data-dependent and do not believe monetary policy is on a preset course. The Bank of England raised its short-term interest rate from 0.25% to 0.50% and the European Central Bank discussed shifting towards tighter monetary policy to address inflation concerns. The gradual removal of accommodation by central banks could lead to continued volatility in the markets in 2022.

Next Week:

CPI, U. of Michigan Sentiment

Copyright © 2022. All Rights Reserved.

© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the US Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.