Unmistakable signs of strength in January U.S. jobs report

More important than the headline number were the falling unemployment rate, much higher-than-expected wage growth, and even upward movement in the number of hours worked.

Robert Johnson, CFA 8 February, 2016 | 6:00PM

Well, at least market performance was relatively equal across sectors this week, with no need for anybody to feel left out. Most equity markets dropped by 2% to 3% for the week, commodities were down about 3%, and bonds gained as the yield fell on the U.S. 10-year bond from 1.93% to 1.84%.

Whatever the headlines may say, we believe this type of performance suggests fears of slowing economic growth around the world. Fixation on daily oil price movement continues, too. At least when markets were focused on the Fed, the volatility was limited to a few days or a few months of the year. Almost daily announcements of one oil metric or another, as well as world markets for energy have kept markets gyrating from day to day. And some of this movement set off other program trades (rules such as sell stock when oil falls 5%) in other markets, and then momentum kicks in. It's a self-perpetuating process that has been painful to watch. First, predicting exactly how and when computer programs kick in is way beyond our capabilities. Second, for now, the market has lost its grounding in fundamentals and seems to care only about daily oil prices. Some posit that oil demand is sending implicit signals about economic growth. Oil traders may be good at many things, but forecasting economic growth is not one of them.

Economic data was a mixed bag, as usual. Some China purchasing manager data was down while other reports were up; however, none of them was ebullient. U.S. auto sales were greatly improved in January after December data was skewered by the statisticians, who have apparently misplaced their seasonal adjustment calculators. Reported sales have now moved from 18.1 million units in November to 17.2 million units in December, before rebounding to 17.54 million units in January. The bounce came despite a major snowstorm in the Northeast that closed some dealerships for days during January. Plus, consumers didn't seem so afraid of the January market sell-off, based on relatively strong auto sales, a key concern on investors' minds.

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.

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