Don’t expect a red-hot January jobs report after February’s chill when next weekend’s more eagerly awaited than usual monthly employment report is out.
Jens Nordvig, founder and chief executive economist at research firm Exante Data, said that’s because warmer-than-normal weather contributed to January’s blowout jobs reading — a phenomenon that history shows doesn’t reverse next month.
Temperature data, which the firm previously used to forecast European demand for natural gas, was also found useful in examining near-term labor market trends. In a video clip shared with MarketWatch, Nordvig told clients that the correlation between temperature and payroll growth is real, though not getting much attention.
The chart below tracks the deviation in US temperatures from normal in January and February. The highlighted rows show that in years in which January temperatures were higher than normal, payrolls exceeded forecasts for both January and February.
As the chart shows, January 2023 was 5.4 degrees warmer than normal, while payrolls saw an increase of 517,000, erasing forecasts of much lower growth.
The warm weather may have added 200,000 jobs to the January payrolls increase, not just seasonal workers being laid off, he said.
“So construction workers generally have a hard time getting to work in New York or elsewhere where it’s usually cold in January,” he said, an effect that was likely seen in other areas as well.
look ahead: The stock market will have an important test this week: 3 questions that can decide the future of the rally
So what about February? The chart shows that temperatures were warmer than normal by around 3.4 degrees Celsius, but not as hot relative to the January average. Nordvig said this means weather in February is not likely to have the same impact on the February jobs report, which is scheduled for release on March 10, after January’s warm weather had an impact on that month’s data. .
But the key takeaway from the data is that strong weather-enhanced January gains in the past have not been followed by reversals in February, he said. In 2006, January temperatures were 6.9 degrees above normal, but were largely back in line in February. For example, payroll growth in February 2006 blew away forecasts and outpaced January’s growth, coming in at 306,000.
The conclusion, Nordvig said, is that investors shouldn’t expect the February data to be a reversal of the strong January data. If so, it means that the moving average that Federal Reserve policymakers are watching will remain strong.
Economists polled by The Wall Street Journal expect February payrolls to increase by an average of 225,000.
The employment report is often seen as the most market-sensitive data of the month. Investors will be particularly focused on February data after a blowout January reading on Feb. 3, with the unemployment rate at its lowest since 1969, helped last month’s rapid reassessment of how high the Federal Reserve should take interest rates. Needed Curb on inflation.
The inflation data pushed the 10-year Treasury yield above 4%. How high can interest rates go?
Treasury yields, which pulled back in January, are back on the upside, while stocks have eased into early 2023. Yields fell marginally on Friday, while stocks saw strong gains. S&P 500 SPX,
prevented three consecutive weekly losses, while the Dow Jones Industrial Average DJIA,
ended a stretch of four straight weekly declines that had temporarily erased its early 2023 gains.
Read further: Important question for stock market investors: take profit or sit tight in March ‘make or break’
Credit: www.marketwatch.com /