Post-holiday cheer: U.S. January jobs report shines, manufacturing expands

On the latest edition of Market Week in Review, Quantitative Investment Strategist Abraham Robison and Research Analyst Brian Yadao discussed the U.S. employment report for January, recently released manufacturing data and the latest headlines surrounding coronavirus.

U.S. reports stellar January job gains

The U.S. economy added 225,000 jobs in January, a number Robison characterised as massively positive. "U.S. nonfarm payroll additions last month surpassed most estimates, and came in far above the replacement rate - the number of new jobs needed on a monthly basis to keep up with population growth," he remarked.

Wage growth crept up to 3.1% on a year-over-year basis in January, Robison said, explaining that the slight increase from December isn’t nearly enough to bring the U.S. Federal Reserve (the Fed) off the sidelines. "The Fed has been very clear that it needs to see a significant rise in inflation before potentially raising interest rates - and that hasn’t happened," he noted, adding that the upward trend in wage inflation has been very slow.

Manufacturing activity on the rise in the UK, U.S.

Turning to manufacturing, Robison said that for the first time in six months, the Institute for Supply Management (ISM)’s U.S. manufacturing index rose above 50, indicating expansionary conditions. "The ISM reading for January of 50.9 is a good sign for the U.S. as a whole, as manufacturing tends to be a very predictive and helpful number for assessing where the economy is headed," he stated. The positive report suggests that last year’s trade spat between the U.S. and China has not had a long-lasting detrimental effect on the sector, he said.

The UK manufacturing PMI (purchasing managers’ index) also rose last month, increasing to a level of 50.0, Robison said, halting an eight-month slide. The reading provides further evidence that the global manufacturing slowdown is dissipating, he remarked.

Coronavirus update

Coronavirus dominated headlines the week of 3 February, with some larger global companies expressing concern over the outbreak on earnings calls, Robison noted. However, the virus has really only impacted Chinese markets in recent days, he observed, with developed markets noticeably less affected.

Importantly, the number of new cases appears to have slowed, he noted. "When this occurs, it can indicate that a virus has peaked," Robison explained, cautioning that the numbers are likely to jump around a bit in the days ahead. An important watchpoint will be whether or not the virus spreads to a smaller country with a less robust health system, he said. "If this were to happen, the country may not be able to contain the virus as well, and the impacts could be sizable," Robison concluded.

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.