The U.S. added 143,000 jobs in January, less than estimated but still considered to be a respectable job gain and enough to continue fueling the economy. The government’s report suggests the fires in California and the harsh winter weather were not a factor in the lower-than-expected job gains, but the data shows 573,000 people were unable to work due to weather related factors, the largest amount since the Texas ice storm four years ago. The two-month revision added 100,000 jobs to the mix. Job growth was heaviest in health care, retail trade and government. The annual benchmark revision shaved 20,000 jobs per month, for an average monthly gain of 166,000 versus 186,000 jobs – again, lower than expected but adequate. Hourly earnings remained at 4.1% and the labor force participation rate inched up to 62.6%. When the details of the job report are added together, we get a moderate slowing but still healthy labor force with modest wage inflation – all enough to keep the Fed on hold until the impacts, good and bad, of the Trump administration pan out.

KEY INDICATORS THIS WEEK

ISM Surveys – The Institute of Supply Management (ISM) surveys revealed a tale of two different January economic patterns on the verge of reversing. Manufacturing activity expanded for the first time in over two years, rising to a measure of 50.9, as new orders and production indexes increased. New orders rose for the fifth month in a row at the strongest pace in over two years. On the other hand, activity in the services industry, the golden child of the U.S. economy since the pandemic, fell to the lowest level since August, 52.8. The measure of new orders placed with service providers was the weakest since June. Prices were another diverging component, with manufacturers beginning to see elevated costs (prices paid were the highest since May) but service producers finally feeling some relief after the high costs for most of last year. Employment improved at both services and manufacturing companies.

Tariffs – The tariff situation is an everchanging and tricky subject to understand. After the initial shock of expecting tariffs to take effect on February 1, the subsequent delay for a month and compromises between the countries have left investors and economists in limbo. The ultimate outcome and impact on the economy is difficult to determine. As for the financial markets, the delay has brought a sense of calm for at least a month. The uncertainty has brought the idea of the Fed back into play, with the bond market expecting the Fed to be aggressively cutting rates due to a potential slowdown to the economy. The inflation quotient is still under debate, with most experts expecting some degree of price increases. With Waffle House imposing a 50-cent surcharge for eggs, anything is fair game now.