The average 3-month change in payrolls firmed to 289k, the largest such increase since March last year. Even a softer February print – some payback for January’s exceptional number – will not detract from the growing evidence of a re-acceleration in the jobs market. Hiring breadth is picking up too, a bullish signal for the economy.
Perhaps the most significant aspect of the jobs report was the upturn in hiring in professional & business services, a bellwether for the services sector more broadly. If this sector adds to the other sources of growth, it could constitute a very potent mix. It is still very early in Q1, with few data releases, but the New York Fed is nowcasting Q1 growth at a 3.31% q/q annualised rate, following the strong nonfarm payrolls data and the ISM manufacturing survey.
Investment could accelerate in 2024: tech giants are set to ramp up capital expenditures, notably in data centres, as the major players jostle to take the lead in AI. Like Microsoft and Alphabet, Amazon and Meta have projected higher capital spending this year to support the growth of AI infrastructure. Blackstone has been bankrolling the development of massive structures, crucial to handling the computing needs of Big Tech, following the $10bn takeover of data centre operator QTS in 2021.
The FOMC will soon be forced to recognise that r* has risen post-pandemic. The evidence has been mounting for some time. The non-manufacturing ISM report out earlier this afternoon showed solid growth: the prices paid index climbed from 56.7 to 64.0 too, the highest since February 2023. The supplier deliveries index also rose from 49.5 to 52.4. The January payrolls report reinforces our base case for monetary policy in 2024 – the Fed embarks on one or two adjustment cuts this year. Long-dated Treasury yields climb, towards 5%, with growth remaining firm.
