It’s hard to find much wrong with the January jobs report, especially one that included signs of life for those elusive wage gains. The economy has now added at least 200,000 jobs for 12 straight months, a feat last accomplished in 1994-1995. The markets are generous with their early endorsement: stock indicators gained in response to the Labor Department headlines, so did the U.S. dollar. Gold tumbled and bonds fell, which means yields (aka market interest rates) rose. So, with the S&P 500 (SPX) already tapping resistance near 2060, can it push on from here? Or does that fortified line require a few more tests?
The Headlines Included Wage Increases. The U.S. added 257,000 jobs in January (topping broad Street expectations for about 230,000). What’s more, hiring in the final two months of 2014 was even stronger than previously reported. November's job gain was revised up to 423,000 from 353,000 (the first push above 400K since the end of the recession if you exclude the Census-hiring pop). And, the number of jobs created in December was bumped to 329,000 from 252,000. Hiring was healthier in the typically higher-paying areas of business services, manufacturing, and construction. The labor-force participation rate rose several ticks to 62.9%. The unemployment rate, meanwhile, edged up to 5.7% from 5.6% as more confident people entered the labor force in search of work. Average hourly wages rose a stronger-than-expected 0.5% in January to $24.75 after declining in December. That put the 12-month increase at 2.2%, close to a post-recession high. Wages are a loaded subject. Higher wages are needed to bridge improving hiring figures to stronger spending on houses, cars, electronics, and so on. But a spike in wages could nudge the Federal Reserve into moving faster than currently planned with interest-rate increases. This report is not that spike, or at least it’s not yet a trend, so it’s likely to be well-received on Wall Street.
A Hawk Chimes In. It’s hard to argue against a Federal Reserve interest-rate hike, Charles Plosser, the president of the Philadelphia Fed, said in a CNBC interview on Friday. Plosser said the U.S. central bank needed to "look through" low inflation as temporary. Plosser downplayed concern that a rate hike would cause the dollar to spike higher and choke off exports. Plosser said the strength of the dollar is "not unprecedented.” Plosser is retiring from the Fed on March 1 and will not attend the Fed's next policy meeting in mid-March.
On the Radar. This week kicks off with the latest TD Ameritrade Investor Movement Index® (IMXSM) on Monday (refresher: IMX tracks holdings/positions, trading activity, and other data from a sample of our 6 million funded client accounts). Let’s see what stocks this group of retail investors bought and sold during a volatile January. Later in the week, retail sales figures grab the attention as, again, the Street wants evidence that stronger hiring means stronger spending.