Labor Markets Prove Resilient Once Again

Rates climb after January labor release. U.S. Treasury yields rose ~6-8 bps today after largely positive January labor data and prior-year revisions heightened concerns about persistent inflation. The 2-year yield ended the day ~8 bps higher at ~4.29%, while the 10-year yield closed ~6 bps higher at ~4.50%. Equities fell throughout the day after a report showed a broad deterioration in consumer sentiment and following President Trump’s announcement that he would impose reciprocal tariffs on countries that currently have tariffs on U.S. goods in place. The S&P 500 and NASDAQ ended the day ~0.95% and ~1.36% lower, respectively.

Today’s data illustrated continued labor market strength. Nonfarm payrolls grew 143,000 in January, below expectations of 175,000 and last month’s 307,000 result, but the results were viewed positively as a sign of continued yet moderating labor strength. The unemployment rate declined to 4.0%, the lowest since last May, vs. expectations of no-change from December’s 4.1% print, while average hourly earnings climbed 0.5%, exceeding expectations of a 0.3% advance. Importantly, today’s release also included the much-awaited yearly payrolls revisions. While total growth in 2024 was ultimately lower than the original estimates (1,996,000 vs. 2,232,000), the revised results were still considered solid. Overall, the data lent support to the case for a patient Fed.

Consumers are worried about tariffs. Per preliminary data released by the University of Michigan, the overall consumer sentiment index fell to 67.8 from 71.1 in February, below expectations of an increase to 71.8. The index logged its lowest level since last July’s 66.4 result, largely driven downward by fears of tariff-related inflation. Survey respondents’ views on current conditions and future expectations both deteriorated, and their year-ahead inflation expectations jumped a staggering 1.0% vs. January’s report to 4.3%. The worsening outlook was observed across political lines, with survey director Joanne Hsu stating, “Republicans appear to be moderating somewhat from their immediate surge in confidence following the election, while Democrats continue to worry about the implications of Trump’s economic policies.”