Jobs Strong, Inflation Soft Is The Sweet Spot For The Fed

February 1, 5:00 pm EST

We had a big rebound for global markets (and economic sentiment) in January.  Today we had the jobs report and some manufacturing data from the past month.

The data continues to show an economy that is in the sweet spot for the Fed.  Economic activity is solid.  And inflation is tame.

The jobs report has been good for a long time now.  Just because stocks collapsed in December, it would make little sense to dial down expectations for the important January jobs numbers.  After all, we’ve seen the chart of roughly 200k new jobs added every month (on average) for the past eight years or so. And that includes some very turbulent times, over that period. 


But Wall Street tends to quickly get sucked into emotional ebb and flow. In the case of the past couple of months, they’ve been adjusting down the bar for earnings and the economy, and we get positive surprises, which are good for stocks.  Today’s number was a big positive surprise — 304k added jobs.

Maybe a more interesting number was the manufacturing number.

The economic activity in the manufacturing sector continued to expand in January, and came in hotter than expected.  In a month of January, where all we heard was the story of slowdown, the nation’s supply executives broadly reported the manufacturing sector to be growing, and a faster clip.

Meanwhile, the inflation component came in softer.  And as you can see in the chart below, it has been on the slide.

Again, this is the sweet spot for the Fed.  The economy doing well, without inflation pressures.  That means they sit and watch (i.e. rates in a holding pattern for the foreseeable future).
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