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Will January jobs report signal turning point?

February 3, 2011 |  3:36 pm

The table is set for Friday’s government report on January employment: Stocks rallied Thursday and Treasury bond yields jumped as investors appeared to be preparing for a significant gain in payrolls.

The Dow Jones industrial average rose 20.29 points, or 0.2%, to 12,062.26, a new 2 1/2-year high. Most broader indexes also advanced but remained below their recent highs.

In the Treasury market, some investors dumped bonds, fearing that a hefty rise in payrolls could trigger a new exodus from fixed-income securities in favor of stocks and other growth bets.

10yrfeb The 10-year Treasury note yield (charted, at left), a benchmark for mortgage rates and other long-term borrowing rates, surged to 3.55%, up from 3.48% on Wednesday and the highest since May.

The T-note yield broke through the recent high of 3.53% reached Dec. 15, despite Federal Reserve Chairman Ben S. Bernanke’s comments Thursday suggesting that the central bank has no plans to retreat from its controversial bond-buying program.

Job growth has been the missing link in the economy’s recovery, of course. Stock market bulls want to see hiring begin to surge to underpin the case for continued corporate earnings growth. Bond investors fear a jump in hiring because it could fan inflation worries (although Bernanke reiterated that he sees no inflation issue yet).

Economists’ consensus estimate calls for a net gain of 146,000 non-farm jobs in January, according to a Bloomberg News survey. If they’re right, it would be an acceleration from 71,000 in November and 103,000 in December. A truly strong number, however, would be 300,000-plus.

Upbeat January data in recent days on manufacturing, services and retail sales showed that the economy’s fourth-quarter momentum spilled into the new year. That might have given employers more justification for adding staff if they already were considering doing so.

But some economists say the horrendous weather in much of the country last month depressed payroll gains. Investment research firm Strategas Research Partners in New York said in a report Thursday that it would have predicted a “sizable” gain in jobs, “but the inclement weather has tempered our expectation to just 150,000.”

Deutsche Bank Securities economists trimmed their estimate to 125,000 from 150,000, also because of the weather.

Economists at Nomura Securities say the number will be much worse than the consensus: They’re forecasting that weather-related interruptions will mean a net loss of 5,000 jobs for the month.

But even if they’re right, it wouldn’t be “an indication of underlying job conditions, which we believe continue to improve,” Nomura said.

In other words, a weak headline number Friday isn’t likely to be viewed as negative for the economic outlook if most of it can be explained away by the weather.

-- Tom Petruno

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