Labor Market Update 2023

The Wall Street consensus was +203K for Non-Farm Payrolls, but the headline number, at +223K, handily beat that consensus. As a result, the “soft-landing” narrative for the economy is back on the table. The cherry on top was the unexpected low growth  in wages (+0.27% to the second decimal). Consensus was +0.4%. Perhaps the much feared “wage-price” spiral isn’t happening! And with those two pieces of data, the equity markets spiked more than 2% on Friday, January 6 (the DJIA rose more than 700 points) and has advanced another 380 points as we record this. One would think that, since the labor market appears to be so strong, this would elicit a further hawkish response from the Fed, and that interest rates would spike higher. But the opposite occurred with the 10-Yr. Treasury yield falling more than 16 basis points (to 3.56% from 3.72% on Thursday) and even short-term rates tumbled significantly (the 2-Yr. Treasury plunged nearly 20 basis points to 4.26% and currently sits at 4.17%). Something appears to be out of whack! If, as a result of this data, the Fed continues to raise rates, as it says it will, then the oncoming Recession will be deeper and longer than necessary.
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