US labour market strength cannot last
January payrolls posted a stunning beat, rising 517k vs 188k consensus, with the unemployment rate falling to a new 5-decade low of 3.4%. Annual benchmark revisions were also positive, showing employment was around 800k higher than previously estimated as of December, although the population was also revised up by around 950k, leaving the unemployment rate estimate unchanged.
All told, the labour market has been even stronger than previously estimated. At the same time, wage growth has continued the benign trend of recent months, with hourly earnings rising again at a 0.3% m/m pace, which drove a further decline in annual earnings growth to 4.4% y/y from 4.8% in December.
Massive payrolls beat likely a one-off
Overall, we think this degree of labour market strength – in the face of contracting investment and rapidly cooling consumer demand – is unsustainable. It also contrasts with the significant uptick in job layoffs, evident in the challenger job cuts data released yesterday, as well as business surveys suggesting cooling labour demand. As such, we would view the January print as a likely one-off, with a significant slowdown in jobs growth likely in the February data. The labour market is the most lagging part of the economy, and as such, we continue to expect unemployment to gradually rise over the coming year as the effects of weakening demand increasingly feed through to higher job layoffs and reduced hiring.
