Instant Insight - Non-Farm Payrolls Falls Short of Expectation

[B] Payrolls 111k vs 150K expected
[/B] Non-Farm payrolls fell short of expectations for the month January rising by a mere 111K versus 150K expected. The unemployment rate rose from 4.5% to 4.6%. The report is not as dollar bearish as the initial reading reveals since the prior month’s payrolls was revised upwards to 206K, washing out the disappointment in the report. Wages saw tepid growth despite the overall health of the labor market, suggesting that inflationary pressures remain muted.

As we had mentioned in our Daily Fundamentals, there were plenty of clues that signaled potential weakness. The CME derivatives auction on Thurs settled at 136.3K while the auction today settled at 120K. To start, the number of jobs added to payrolls in the month of December was a very strong 167k. It will be difficult for January payrolls to surpass that level. Secondly, even though jobless claims have been very lean and the ADP Employment Survey was calling for job growth in excess of 150k, layoffs according to Challenger Gray and Christmas increased by 15 percent from last month. This is yet another reason for the Federal Reserve to continue to hold back any rate hikes. The tides are shifting in February as more US data surprises to the downside, questioning the sustainability of the impressive growth that we saw in the fourth quarter. Their concern is that the recent strength may be as much of a fluke as the weather patterns that we have seen so far this year and so far it appears to be.