People Have Power!

Last week’s impressive jobs data—employers added 353,000 new jobs in January, nearly double the expected amount—had investors cheering.

That strong headline number might be a bit deceiving, however.

One reason: Seasonal adjustments to January payroll data tend to be very high, historically, which means we may eventually see downward revisions to that initial number. What’s more, January’s strong wage gains—hourly earnings rose 0.6% from December—could be distorted because of abnormally short workweeks last month that resulted from snowstorms and frigid weather across the country.

To better cut through that noise and get a more realistic perspective, consider a metric known as workers’ total spending power (the number of people employed x hours worked x average hourly earnings) instead.

As the chart below shows, the healthy jobs market is keeping consumers’ spending power robust—right in line with its 2018-2019 pre-pandemic average for more than a year now.

That’s great news, of course, as it provides a strong backdrop for the economy and corporate earnings going forward. While the unexpectedly large job gains we saw last week may delay Fed rate cuts later into the year—and create some short-term volatility as a result—investors will be best served by staying focused on the underlying strength of the American economy and consumer.

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