Markets slip on weak consumer sentiment

Dow dropped 259, decliners over advancers 5-2 & NAZ lost 214.  The MLP index was off 2+ to the 219s & the REIT index dipped 2+ to the 405s.  Junk bond funds hardly budged & Treasuries were sold which raised yields.  Oil crawled higher but remained under 71 & gold gained 19 to 2895.

Dow Jones Industrials

The US economy added jobs at a slower pace than expected in Jan, as the Federal Reserve remains in a holding pattern for interest rate cuts as it evaluates the labor market & inflation data.  The Labor Dept reported that employers added 143K jobs in Jan, below the estimate.  The unemployment rate came in at 4%, lower than expectations.  The number of jobs added in the prior 2 months were both revised, with job creation in Nov revised up by 49K from a gain of 212K to 261K; while Dec was revised up by 51K from a gain of 256K to 307K.  Taken together, 100K more jobs were created in those 2 months than previously reported.  Private sector payrolls added 111K jobs in Jan, below the 141K estimate.  Wage growth was stronger than expected, with average earnings growing by 0.5% from the prior month and 4.1% from a year ago.  Those both top the estimates of 0.3% growth on a monthly basis & 3.8% year over year.  The manufacturing sector saw employment rise by a modest 3K jobs, which came in above expectations that the sector would shed 2K jobs for the month.  The  health care industry added 43K jobs, driven by hiring at hospitals (+14K), nursing & residential care facilities (+13K) & home health care services (+11K).  The sector was below its 2024 average of 57K jobs per month.  Retail added 34K jobs last month with notable gains at general merchandise retailers (+31K) & furniture & home furnishings retailers (+5K), while electronics & appliance retailers saw a decline (-7K).  Overall, the retail sector had little net employment change in 2024.  The gov added 32K jobs, a figure that was close to in line with its average monthly gain of 38K in 2024.  The number of people considered to be long-term unemployed, defined as being jobless for 27 weeks or more, was little changed at 1.4M.  The long-term unemployed accounted for 21.1% of all unemployed people.

US economy added 143,000 jobs in January at a slower pace as Biden exited office

Consumers grew dramatically more worried about near-term inflation as Pres Trump pushed aggressive tariffs against major US trading partners, a closely watched survey.  The University of Michigan consumer survey for Feb showed that respondents expect the inflation rate a year from now to be 4.3%, a 1 percentage point jump from Jan & the highest level since Nov 2023.  Though Trump postponed tariffs against Canada & Mexico, the looming threat of price pass-thrus to consumers shook sentiment.  China has levied retaliatory tariffs following Trump’s move. “Many consumers appear worried that high inflation will return within the next year,” said Joanne Hsu, the survey's director.  “This is only the fifth time in 14 years we have seen such a large one-month rise (one percentage point or more) in year-ahead inflation expectations.”  Longer-run expectations weren't hit as much, with the 5-year outlook drifting up to 3.3%, a 0.1 percentage point gain.  Worries over inflation dovetailed with lower optimism overall, as the headline index fell to 67.8, a 1-month drop of 4.6% & an 11.8% move lower from the same month a year ago.  The forecast had been looking for a reading of 71.3.  Hsu said overall declines in the various survey indexes reflect “a perception that it may be too late to avoid the negative impact of tariff policy.”  The current conditions index also slumped, down to 68.7, or 7.2% lower than Jan & down 13.5% from a year ago.  Expectations declined to 67.3, for a respective drop of 2.9% & 10.5%.

Consumer inflation fears spike as tariff worries hit sentiment

Minneapolis Federal Reserve Pres Neel Kashkari said he expects to see interest rates lower this year if the economic data continues to move in the same direction.  In a CNBC interview, the central bank official expressed confidence that inflation will continue to drift down to the Fed's 2% target, while Fri's nonfarm payrolls report showed the labor market continues to look strong.  “Ultimately, our job is maximum employment and stable prices. If we see very good data on the inflation front while the labor market stays strong, then I think that would move me towards supporting easing further,” Kashkari added.  “I don’t know why we’d have to keep rates where they were if we really saw inflation coming down quickly.”  Headline inflation in Dec ran at a 2.6% annual rate, according to the Fed's preferred personal consumption expenditures price index.  Excluding food & energy, core inflation was a bit higher, at 2.8%.  That's still considerably above the central bank's 2% goal, though Kashkari said he expects housing-related data, particularly on rents, to ease through the year & eventually bring prices back to target.  Kashkari is not a voter this year on the rate-setting Federal Open Market Committee but will vote in 2026.  “We will get inflation down to 2%. We’re committed to that,” he said.  However, his colleagues in recent days have expressed some concern over what fiscal policy could do to the inflation picture.  Pres Trump has pushed aggressive tariffs against the largest US trading partners & some economists worry that they could reignite inflation if they trigger a trade war.  “We’ll have to see where what that uncertainty looks like. What’s the range of the negotiation that’s taking place?” he said.  “Obviously tariffs are hard, because it’s not simply what we do in America, it’s how other countries respond and the back and forth.”

Minneapolis Fed’s Kashkari expects lower interest rates later this year

Stocks turned lower as investors digested a jump in consumer expectations for inflation & a cooler-than-expected jobs report.  The markets took a leg lower after a report said Pres Trump told Rep lawmakers he plans to announce reciprocal tariffs on American imports as early as today.  The major gauges slid earlier into the red after US consumer sentiment sank to a 7-month low in, undershooting forecasts.  Inflation expectations jumped amid concerns about Pres Trump's tariff threats.  The 10-year Treasury yield rose to 4.5% in the wake of the sentiment update & the monthly jobs report.