January jobs report: U.S. adds 517,000 jobs, blowing past estimates

Yahoo Finance Live anchors break down January jobs report data.

Video Transcript

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JULIE HYMAN: Good morning. Ah, the drama, it's jobs Friday, February 3. Brad Smith has just pointed out to me it's 2/3/23 today, ladies and gentlemen, on the calendar. This is "Yahoo Finance's Live." I'm Julie Hyman alongside the aforementioned Brad Smith, as well as Brian Sozzi.

And if we take a look at futures ahead of the January jobs numbers, we see a little bit of a downdraft here following a raft of disappointing earnings from big tech last night. We're gonna get to those much later. But that is the reason that you see the NASDAQ doing the worst of the three major averages before these numbers here this morning.

Let's run through the main estimates here coming from economists. Economists estimating non-farm payrolls went to 189,000 in the month of January. We're looking for an unemployment rate of 3.6% and average hourly earnings to have risen, as you can see, 4.3% year-over-year or 0.3% on a month-over-month basis. And, guys, we each have our things that we are watching for in the jobs report. Sozz, what do you got?

BRIAN SOZZI: Well, I'm still trying to wake up from that Apple earnings call. Brad, that was a-- what a slog. But as for me, I'm looking at a good chart from the team over at Goldman Sachs, pointing out the layoffs-- looking at from the Challenger Christmas survey, you see those layoffs spiking, of course, big tech. But of course, a lot of these job cuts are now spreading to the manufacturing space. But you see that spike up, yet has not been reflected in initial jobless claims. And that has some, I think, looking for maybe some upside in this jobs report today.

BRAD SMITH: Yeah, I'm keeping an eye on, of course, the unemployment rate. And there's a question of how much this report matters to the Fed. The Fed is, of course, looking for a trend here. And even this week saying-- from Fed Chair Jay Powell within their press conference, saying that despite the slowdown in growth, the labor market remains extremely tight. Unemployment rate near 50-year low here. Job vacancies still very high and wage growth very elevated right now.

So with that 3 and 1/2% unemployment rate in the expectation looking for something closer to 3.6%, yeah, we're still in the same ballpark there. It's just a matter of where there does start to resemble some signs of weakness here in the employment situation.

JULIE HYMAN: Yes, indeed. And so we also have this debate about whether there is still tightness or slack in the labor market. The signs point to slack, at this point. And my chart comes to us from the FRED blog, which is looking at the labor force participation rate by age group. And noting that the group that really has not recovered as much as the others is the 20 to 24-year-old cohort, prime working age, right, for those who are not getting a higher education.

And yet, those people have not returned to the workforce in the same numbers as 25 to 54. That's the cohort that is the closest to where it was prepandemic. And then, of course, to older Americans either. But this suggests because the participation rate is not-- still not back up overall to where it was prepandemic, that does suggest there's still some slack, right, in the labor market. So that's something to note, as well.

Something else, just sort of a technical note I want to say about today's jobs report. It's the benchmark revisions report that they do annually. So going back to early last year, they do some revisions to those numbers. So not necessarily gonna have an effect on-- it's not gonna have an effect on what we're seeing today but just something to keep it in the back of your mind here.

BRIAN SOZZI: Also, something to keep in the back of your mind, just listening to some of these tech earnings calls last night. Notably, that the one out of Alphabet, I think if investors thought big tech was done cutting employees in large quantities, you best think again.

You have now Alphabet looking to close various offices, various facilities, spending millions upon millions of dollars to get out of these locations. And perhaps can more people-- we heard from Meta earlier in the week, it remains very focused on efficiency. So I get that this jobs report, maybe it's a surprise to the upside but we could be looking at some tough reports as the year goes along, as some of these big tech layoffs get even worse.

BRAD SMITH: And that's what's catching so much attention. That's what's making it to the brunch table barometer, I'll bring it back to you here. That's what making it to those conversations is when you hear some of your favorite household brands and names announcing that they're making these major job cuts. Of course, Apple, as of right now, still abated from that conversation.

But for many people who have been watching this across some of those consumer technology names, that starts to add up in their mind. It's just a matter of whether or not the Fed is saying, yeah. But here's the thing, there's still slack, to your point, and it's not showing up on a more broad scale or broad basis right now.

JULIE HYMAN: And one of the other things we have to watch when we look at average hourly earnings is the mix of workers that are still being added. In other words, as we see more workers being added on the hospitality side that are maybe lower-paying jobs and not as much hiring on the higher salary information side, we're probably gonna see some mitigation moderation in that average hourly earnings growth, which, to come back to the Federal Reserve, is what the Fed wants.

But is this jobs report gonna make the Fed's job more complicated? Probably, because these jobs reports have been holding up and have been relatively strong. So, again, as we await the numbers, 188-- or 189,000 is what we're looking for from these numbers. Let's see what we get here, as this clock strikes 8:30 and we wait for these numbers. I'm looking for some of them to populate. 517,000!

BRIAN SOZZI: Wait, what?

BRAD SMITH: Wow.

BRIAN SOZZI: Huh?

JULIE HYMAN: 517,000 jobs added to the US economy last month. Let's run through some of the other numbers, as I get over the shock of that. 3.4% the unemployment rate, so falling instead of rising. Average hourly earnings, indeed, coming in line with estimates with a gain of 0.3%, although it's 4.4% on a year-over-year basis.

So let me say that number again, folks, 517,000 jobs added to the US economy last month. 188 was the latest estimate that we were looking for, 223. So talk about making the Fed's job more complicated, right?

We heard from the Fed earlier in the week that disinflation was happening. That inflation is slowing down. The rate of inflation is slowing down. The market was overjoyed about this, right? We saw stocks take off. This suggests the Fed has more work to do so I would imagine that we are seeing stocks plunge down pretty quickly. I don't know if we have a chart of futures.

BRIAN SOZZI: And, Julie, it's not just the headline here. You go down to the bottom of this jobs report, we have upward revisions to November tallying 34,000. You have December revised up by 37,000. So not only did we-- a blow out jobs report here, but the prior two months are showing that the economy was, perhaps, stronger than people thought, which to your point, Julie, really, I think, makes things tough here for the Fed in their coming meetings.

BRAD SMITH: Some of the context that the Fed had laid out coming into this print, as well, is that employment had risen by an average of 247,000 jobs per month before this. This certainly gonna bring that average up. You look across some of the strongest job growth. And they said it was widespread, led by gains in leisure and hospitality, professional business services, health care, as well.

Employment also increasing in government and partially reflecting the return of workers from a strike there. But this, an amazingly just outsized print and catching the markets by surprise here this morning, too, as you're seeing the NASDAQ futures, which had been leading the charge this week, down by a little bit more than 1 and 1/2%.