On the January Jobs Report

The big headline beat in payrolls is exactly what our model predicted, based on contemporaneous labor market indicators including the breakout in the NFIB’s Hiring Plan’s Index. It seems that the revival of “animal spirits” associated with Trump’s election have begun to drive grass-roots growth and job creation, following the “mid-cycle refresh” provided by the near-recession one year ago. The tepid growth in average hourly earnings, coming on the back of a downward revision to last months’ big gain, will comfort dead-enders at the Fed who fear that employment causes inflation. Bonds are wrong to rally on this development. A less hawkish Fed, along with the second leg up in growth that we forecast, will drive yields higher.