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4 Reasons to Cheer the January Jobs Report

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Although the 151,000 jobs added in January undershot consensus expectations by more than 30,000 and the impressive December increase was revised downward, the monthly snapshot of the U.S. labor market released Friday offered good news for the economy. It also should cheer financial markets, if they can look beyond their obsession with central bank liquidity support.

QuickTake Monthly U.S. Jobs Report

Here is why:

  • Previous years of strong job creation seem to be having an impact on hourly earnings. The 0.5 percent wage growth is encouraging.
  • The impact of higher wages on take-home cash is enhanced by a concurrent increase in hours worked.
  • The participation rate increased to 62.7 percent, suggesting that workers who had been discouraged are returning to the labor force.
  • The unemployment rate fell to 4.9 percent, the lowest in nine years.

All this means that more Americans have jobs and are getting paid more. It also suggests tighter labor market conditions, drawing workers back in and increasing potential output. And this is a positive sign for the prospects for consumption -- the biggest component of U.S. gross domestic product and the main driver of the economy. This signal is particularly notable amid weaker global growth and recurring bouts of financial market volatility.

Financial markets will welcome signs of improving fundamentals. But they also will be concerned about what the data indicate regarding the willingness of central banks to continue to support asset prices through exceptional measures, which markets have been conditioned to embrace wholeheartedly as a driver of financial returns.

Specifically, the January report will serve as a reminder that it is too early to fully eliminate the possibility that the Federal Reserve, the most powerful central bank, will raise rates in March. As a result, the data is likely to lead to an uptick in market yields, and cause some nervousness in U.S. equity markets. But, in a perfect world, such concerns over the Fed would become a sideshow over time, provided that fundamentals continue to improve. 

El-Erian: This Was a Good U.S. Jobs Report

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net