The stock market got a nice surprise to start the day after the Bureau of Labor Statistics released a delayed January jobs report that was well received by investors.
The U.S. economy added 130,000 jobs in January, more than double the 55,000 economists had estimated. The unemployment rate fell 10 basis points (0.1%) from the prior month to 4.3%. The Dow Jones Industrial Average rose as much as 250 points, although it had given back a good amount of those gains, as of 10:06 a.m. ET. The other major indexes followed a similar path.
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The 130,000 increase in nonfarm payrolls is the highest monthly figure since December 2024. The job gains came mainly from the healthcare and social assistance sectors. Average hourly earnings in January also increased 0.4% from the prior month, higher than expected, and 3.7% year over year, in line with expectations.
There is often a push-and-pull dynamic around strong economic data, as it typically signals a lower likelihood of future interest rate cuts. But here is why the data from this morning is lifting the stock market today.
The economy had been showing signs of weakness
The U.S. economy has been trying to thread the needle between avoiding a recession and not having too strong of an economy that leads to elevated inflation and prevents the Federal Reserve from cutting rates. That's why, in recent years, strong jobs data hasn't always been well-received.
But today, investors were looking for strong data due to recent signs of a weak economy. There have been many reports of layoffs and a job market where companies have not been firing people, but also not been hiring. Many are also concerned that artificial intelligence could automate and therefore eliminate more jobs, stoking those concerns.
Additionally, consumer delinquencies recently hit the highest level in roughly a decade. The U.S. economy is largely powered by consumer spending, but consumer savings built up during the pandemic have largely been depleted. If people keep losing their jobs, spending will likely dry up.
Now, the chance of the Fed cutting interest rates at their March or April meetings has gone down considerably from yesterday, but the market is still penciling in two rate cuts later this year, so the positive jobs report indicating strength in the economy is clearly more important right now.
That could, of course, change quickly, but I still think the market has proven quite touchy when data emerges, suggesting a recession could be on the way. While there are certainly still challenges in the labor market, the January data seems to support Fed Chair Jerome Powell's claims last month that there were signs of stabilization.
If the labor market remains on solid footing, investors will have more confidence in the economy holding up as the year progresses.
