Unexpected Drop in Unemployment Rate Surprises Experts and Puts Economy on Positive Track

By: Miguel A. Rodriguez

09:31, 06 February 2023


The unemployment rate dropped unexpectedly to 3.4%, the lowest in decades, despite announcements of layoffs in large corporations and predictions of decreased economic activity. 

The jobs data released on Friday surprised economists and most investment bank research departments. After accounting for seasonal movement, the Labor Department reported Friday that 517,000 jobs were added in nonfarm payrolls in January, driven by increases in most industries, including restaurants and health care. 

The gains were far greater than economists predicted. Forecasters polled predicted that 187,000 jobs would be added last month, confirming a cooling trend in the labor market.  

Monthly estimates frequently differ from what the government reports, but Friday's data revealed the largest gap in nearly a year between economists' expectations and the Labor Department's preliminary estimate. 

Furthermore, the unemployment rate dropped to 3.4%, the lowest in decades, when it was expected to rise to 3.7%. A figure that does not correspond to the constant announcements of layoffs in large North American corporations, and even less to the expectations of a slowdown in economic activity. 

True, there are sometimes statistical deviations in the publications of this data that are reviewed the following month, but in this case the difference is so large that unless it is a large error, a potential revision will hardly come close to the analysts' forecasts for the month of January.  

The market has entered another period of uncertainty as a result of the shock of this figure. The question is whether the Federal Reserve was correct to announce a pause in rate hikes at its most recent meeting. And if the labor market remains tight and shows no signs of easing, inflation may rise again.  

Investors will now closely monitor all figures related to the North American labor market, anticipating any revisions to the extraordinarily high figure published last Friday.  

Meanwhile, Treasury yields soared, with the 10-year bond rising nearly 10 basis points. Stock indices closed the session in the red, despite having gained ground in the previous week, and the US dollar strengthened against all currencies, with the EUR/USD pair falling more than 100 pips. 

The most notable movement, however, was in gold. Previously, gold benefited from the US dollar's weakness and the fall in market interest rates. But the unexpected number of nonfarm payrolls, investors unwound their long positions in gold, dragging it down by more than $40. Technically, it has returned to the previous reference level of 1875, which can now be used as price support. 

Related: Gold analysis and price predictions 

Sources: Bloomberg, Reuters 

Share this article

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.