Non-farm payrolls expanded more than predicted in January, showing a net gain of 257,000 new jobs. Yields on Treasury bonds rose, with the ten-year note up around ten basis points in the hours following the data release. Importantly, November and December non-farm payroll data were revised upward by 147,000, with November climbing to an impressive 423,000 net gain. Higher-paying construction jobs posted a 39,000 gain in January, indicating the jobs recovery is slowly creeping into the middle class. Temporary and courier employment dropped a total of 18,000 jobs following the holiday season. Average hourly earnings rose 0.5%, a couple tenths of a percent above economist expectations, making the year-over-year wage growth rate 2.2%. At 11.3%, long-term unemployment remains "elevated," as the Federal Reserve mentioned in a statement last year. For U.S. economic growth to return to the prosperous levels of the late 1990s (real GDP growth averaged around 4.0% from 1995 to 2000, versus 2.5% from 2009 to 2014), we look for improved consumer confidence and higher spending. Job creation and a declining savings rate are great indicators of future growth, but the lack of inflation continues to weigh on interest rates. We believe that without a meaningful increase in inflation, interest rates are likely to stay in a range around current levels. However, at some point job creation has to turn into inflation, doesn’t it? More people with more money means more spending, which should drive prices up, right? Until we see prices actually increase our portfolio duration positioning remains neutral.
Sources: GS, Bloomberg, FRB, NCSL, SNWAM Research