Nonfarm payrolls for January came in better than expected at 225,000 following a disappointing December reading. This continues a recent run of strong economic data to start the year which has reduced concerns that the manufacturing slowdown would spread to other parts of the economy.

Further, it reduces the chances that the Federal Reserve will have to cut rates again. However, the jobs report was not so strong that it risks the Fed getting more hawkish. For equity markets, it's a "goldilocks" number. Good enough to ensure that the economy keeps growing but not strong enough to cause a shift in the Fed's dovish stance.

Inside the Numbers

The 225,000 figure was much higher than the consensus 165,000 expectation. In addition to confirming the economy's trajectory, it also shows that there remains plenty of slack in the labor market despite the long expansion. Wage growth came in at 3.1% with average hours worked unchanged. Over the last few years, wage growth has been steadily higher than inflation which is one contributor to consumption, strong consumer confidence readings, and the economy's resilience to external shocks.

Typically when wage growth crosses 4-5%, it tends to indicate inflationary pressures. However, this cycle has inverted so many traditional relationships between inflation and employment that it's unknown whether this still holds. For example, most models would have indicated that an unemployment rate below 5% would lead to labor shortages and higher wages. The unemployment rate increased to 3.6% from 3.5% in December due to the labor force adding more workers which is another positive indication and signal that the labor market slack is more than expected.

Some Skepticism

Month to month, the job figures are quite volatile. There's always room for error and revisions. Making bold calls on the economy based on one figure and not the overall trend is imprudent.

Some are attributing the strong number to unusually warm weather in January. Further, the manufacturing sector lost 12,000 jobs due to weakness in autos. Employment in the construction sector may have been artificially boosted by the weather. There was also hiring due to the 2020 census. Another concern is that weekly hours worked hasn't risen which indicates that productivity growth continues to lag and high-quality jobs are not being created.

Stock Market Reaction

Despite the bullish number, stocks finished lower. However, markets were lower across the globe before the nonfarm payrolls number being released as stocks digested gains following four straight days of rallying back to previous highs.