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Wall Street rises above din of clashing jobs data, earnings

Capitalizing on new data that suggests jobs are raging back, investors finished the week with modest gains.

MANHATTAN (CN) — If the last few weeks have been particularly noisy on Wall Street, in recent days the cacophony exploded.

Muddled jobs data — brought on by a Labor Department jobs report that was three times higher than expected — and somewhat contradictory earnings reports left financial analysts scrambling to make sense of the week, with the Dow Jones Industrial Average picking up 364 points and the S&P 500 increasing 69 points by Friday. The Nasdaq did even better, gaining 328 points, or about 2.3%, for the week.

Analysts had predicted a dismal Friday after the payroll company ADP reported earlier in the week that 301,000 nonfarm, private-sector jobs were lost in January. The losses were across the board among company sizes, with small businesses dropping 144,000 jobs, companies with up to 499 employees losing 59,000 workers, and large-business employment declining by 98,000.

The breakdown among sectors was less equitable, with service-providing industries accounting for nearly all of the job losses, and the leisure and hospitality sector in particular recording more than half of the jobs lost at 154,000.

Many had expected a drop in job gains due to the virulent omicron strain, which had run rampant through the economy during late December and most of January. Following ADP’s report, the first net job loss the payroll company had reported since more than a year ago, analysts predicted carnage as many had forecast about a 200,000-job gain from ADP.

“The labor market recovery took a step back at the start of 2022 due to the effect of the omicron variant and its significant, though likely temporary, impact to job growth,” ADP chief economist Nela Richardson said in a statement, urging some moderation in reaction to the data.

But the impact was even more temporary than had been anticipated, as Friday’s Labor Department jobs report beat the analyst of 150,000 jobs in spades, clocking in at 467,000 jobs gained last month. As if existing in a parallel universe from the ADP report, leisure and hospitality actually led the pack for job gains, nabbing 151,000 new hires — 108,000 of which was from bars and restaurants — while retail increased by 61,000 jobs and professional and business services increased by 86,000 jobs.

Andrew Hunter, senior U.S. economist at Capital Economics, says the Labor Department report is even stronger than it looks since it came in the face of omicron-driven absenteeism. “The gain appears to make a mockery of our fears that omicron would weigh heavily on payrolls,” Hunter wrote in an investor’s note.

Even better, the nonfarm employment gains from the November and December jobs reports were revised upward by a total 709,000 jobs. All told, household employment and the labor force are now thought to be about 1.5 million higher than previously estimated. Nevertheless, the labor market is still about that same amount lower than it was in February 2020, when the pandemic began to take hold in the United States.

“While those revisions aren’t applied to previous months’ data, it nevertheless means that the labor force is not far below its pre-pandemic level after all,” Hunter wrote. “All that time wasted discussing whether workers would return when, in reality, it was mostly just a statistical illusion.”

The disparity between the ADP and Labor Department numbers has some experts scratching their heads to get to the true jobless number. “The truth likely lies somewhere in between these data sources,” said Bill Adams, chief economist at Comerica Bank. “Omicron was a headwind at the turn of the year, but each successive wave of the pandemic is slowing the recovery less.”

As a result of the Labor Department’s report, many now expect the Federal Reserve to lock in a 0.5% interest rate hike after its next meeting in March. “We still think that a slowdown in first-quarter GDP growth will persuade [Fed] officials to start slow, although they could project a bigger cumulative tightening over the next few years,” Hunter wrote in an investor’s note.

Adams noted that “the job market looks generally stronger and closer to meeting the Fed’s definition of maximum employment,” but stressed that labor force participation has recovered slower than overall employment due to early retirements, caregiving burdens and Covid-related disability.  

Last month, the Fed laid the groundwork for several interest-rate hikes for its federal funds rate, and has committed to fully tapering its bond purchases by March and “nimbly” selling off the $9 trillion in assets on its balance sheet.

In addition to the mixed jobs data, key earnings reports this week were not universally positive. “For every solid Microsoft earnings update, there is a Facebook to throw a wrench in the bottom process,” James Vogt at Tower Bridge Advisors wrote.

In the plus column, Amazon reported a massive 9% quarterly jump in its revenue, wowing experts, though the $137.4 billion in net sales was roughly what analysts had predicted. Net income grew $14.3 billion during the fourth quarter of 2021, compared with half that during the fourth quarter of 2020.

Google’s parent company, Alphabet, also beat analyst expectations once again, with its fourth quarter revenue coming in at $75 billion versus the $72 billion forecast and the nearly $57 billion the company made during its fourth quarter of 2020, overall a 32% increase.

On the flip side, Facebook’s new parent company, Meta, swung but had a big miss on its earnings, with its $33 billion in revenue fine but its $10.2 billion in profits 8% less than it was from a year ago. The company also reported a 38% year-over-year increase in costs and expenses. Shares of Meta dropped nearly $100 after the earnings were released.

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