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Analysts at Nomura offered a much needed full review of the nonfarm payrolls report for January, for the data was not all that it seemed. 

Key Quotes:

“The January employment report indicates a greater-than-expected acceleration in nonfarm payrolls, which increased by 227k in January. Although some of the increase in nonfarm payrolls appeared to come from weather-related sectors such as construction (+36k), the strength in new jobs was broad-based.”

“Consistent with the strong job gains have been the very low levels of new unemployment insurance (UI) claims. In midJanuary, the four-week moving average of UI claims was hovering near the lowest levels since 1973.”

“Behind the robust job numbers, however, were signs of a labor market still on the mend.”

“The unemployment rate ticked up to 4.8% and the labor force participation rate went up 0.2 pp to 62.9%.”

“In January, the BLS updates its population controls for the upcoming year, making December-January comparisons a little difficult to make, but these changes had no significant impact on the unemployment and labor force participation rates.”

“The biggest surprises this week was the weak performance of average hourly earnings (AHE).”

“In January, AHE increased only 0.1% m-o-m (versus expectations of 0.3%) and December’s reading was lowered from 0.4% to 0.2%. AHE growth was likely held down by a 1.0% drop in AHE in the finance industry, the largest percentage point drop ever recorded, but it wouldn’t be surprising if this series were revised upwards in the next report.”

“However, even without the finance industry, AHE increased by only 0.2%. When smoothed through the monthly volatility, AHE growth has been decelerating sharply in recent months. Moreover, Employment Cost Index report for Q4 indicates a lack of acceleration in labor costs, with total compensation increasing 0.5% q-o-q in Q4, down from 0.6% in Q3.”

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