Job Market Still Healthy, Wages Outpacing Inflation, Factory Orders Surge, Consumer Confidence Hits 2-year High

- The Change in Non-farm Payrolls for January rose 111K versus estimates of 150K and an upwardly revised 206K in December.
- The Change in Manufacturing Payrolls for January fell -16K versus estimates of -11K and a downwardly revised -18K in December.
- Average Hourly Earnings for January rose 4.0% versus estimates of a 4.1% gain and a 4.2% increase in December.
- Factory Orders for December rose 2.4% versus estimates of 1.9% and a 1.2% gain in November.
- The Final Univ. of Mich. Consumer Confidence reading for January fell to 96.9 versus estimates of 98.0 and a prior estimate of 98.0.

BOTTOM LINE: Employers in the US added a smaller-than-expected 111,000 workers to payrolls in January, evidence of an economy growing at the moderate pace predicted by the Federal Reserve, Bloomberg reported. The US economy needs to create about 75,000-100,000 jobs a month to keep the unemployment rate steady. Americans’ average hourly earnings grew 4.0% year-over-year, well above the long-term average of 3.2% and the most recent CPI reading of 2.5%. Consumer spending, which accounts for over two-thirds of economic growth, boosted 4Q GDP to an above-average 3.5% gain. I continue to believe the labor market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Orders placed with US factories rose more than forecast in December on higher demand for business equipment, motor vehicles and aircraft, a sign manufacturing is stabilizing, Bloomberg reported. Civilian aircraft orders rose 28.1% versus a 4.2% rise in November. Automobile bookings gained 6.4% versus a 2.2% rise in November. Orders for capital goods excluding aircraft and military equipment, a gauge of future business investment, gained 3.1% versus a 1% decline in November. I continue to believe manufacturing activity will improve modestly back to more average levels by year-end as the effects from housing subside and auto production improves.

Confidence among US consumers rose to the highest in two years last month as gas prices fell and the job market strengthened further, Bloomberg said. The expectations component of the index rose to 87.6, also a two-year high. The average gas price fell to $2.23/gallon nationwide in January from $2.31/gallon in December. I continue to believe both main gauges of consumer sentiment(Univ. of Mich. and Conference Board) will make new cycle highs over the coming months as stocks rise further, housing continues to improve, wages continue to outpace inflation as the unemployment rate remains low, gas prices fall further and long-term interest rates remain low.