Bumper US jobs figure creates a challenge for the Fed

Today’s top stories

• The US has accused China of operating a spy balloon over sensitive national security locations in Montana. The incident caused US secretary of state Antony Blinken to cancel his planned trip to China this weekend.

• A multibillion-dollar IMF lending programme for Ukraine could be finalised by the spring. It comes as EU leaders today held a summit with Ukrainian President Volodymyr Zelenskyy in Kyiv.

• The UK’s financial watchdog announced a record number of social media takedown orders in 2022 following a surge in misleading financial promotions by unauthorised “fin-fluencers”.

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Good evening.

The US economy unexpectedly added 517,000 jobs in January according to data released today by the Bureau of Labor Statistics. It underscores the current strength of the world’s largest economy and will complicate the Federal Reserve’s efforts to damp demand as it tightens monetary policy in an attempt to rein in high inflation.

Last month’s jobs growth doubled figures recorded in December and dwarfed the 185,000 more positions predicted by economists ahead of the bureau’s release.

The world’s largest economy saw its unemployment rate fall to 3.4 per cent, the lowest since 1969, while average hourly earnings inched up 0.3 per cent. This took the annual earnings pace for US workers to 4.4 per cent.

It comes as the Fed took the decision to raise its benchmark interest rate by a quarter-point on Wednesday to a range of 4.5 per cent to 4.75 per cent, and diverging from decision making across the Atlantic. It marks a return to a more traditional pace of interest rate increases in the US after sharp shifts last year.

Speaking to reporters on Wednesday, Fed chair Jay Powell said the bank was “cautious about declaring victory and sending signals that we think the game is won”, referring to the Fed’s commitment to choke out the persistent inflation that has dogged advanced economies since the emergence from the Covid-19 pandemic and Russia’s invasion of Ukraine.

But it did ignite speculation that the bank had hit the peak of its rate rising cycle as government bonds and stock markets rallied following the news.

The data today, however, would indeed indicate that central banks have more work to do to cut inflation amid a tight labour market.

“If they’re really reflective of what’s going on in the economy, one has to ask the question: what is the Fed doing slowing down with rates?”, said Steven Blitz, chief US economist at TS Lombard.

US stocks fell on Friday in response to news of the extra jobs. Government bonds were also sold off heavily in a sharp reversal of the buoyant market activity seen yesterday. Wall Street’s S&P fell 0.7 per cent following the payroll figures. Nasdaq Composite saw a decline of 1.3 per cent.

It remains to be seen whether US president Joe Biden can harness the political benefits of a strong labour market with record vacancies. He must surely be mindful of the widespread expectation by economists that the US will dip into recession this year.

Job openings jumped again in January to bring the total number of vacancies to 11mn. Unemployment claims last week fell to their lowest level in nine months.

A small corner of New Mexico stands as an example of this trend, as our report from Tuesday demonstrated. A surge in crude oil production from the Permian Basin has created a boom in the ‘sun-bleached desert town’ of Hobbs.

Staying with the US, Claire Bushey in Chicago assessed the state of the American airline industry. She found an unhappy flying public, citing the legacies of deregulation as the primary culprit for various travel woes.

Need to know: UK and Europe economy

In a big week for central banks generally, both the Bank of England and the European Central Bank plumped for half-point rate rises yesterday, putting them at their highest level since the global financial crisis of 2008.

The UK base rate now stands at 4 per cent. According to our Economics Editor Chris Giles, Bank officials now expect a milder recession than previously forecast.

This came days after the IMF predicted that Britain would be the only leading economy to enter recession this year. Even Russia, battling global sanctions, would likely outpace the UK. However, Britain should not accept its status as the ‘sick man of Europe’, according to former Treasury permanent secretary Nicholas Macpherson.

The EU’s statistics office today announced higher than expected eurozone producer prices for December amid an increase in the cost of energy. According to Eurostat, stated prices by producers in the common currency zone rose 1.1 per cent in December, a reverse of November’s 1 per cent fall.

The UK’s labour disputes continued today as 12,000 train drivers in the Aslef union walked out in a long-running dispute with rail operators over pay and conditions. It comes two days after unions from the rail, teaching, university and public sectors staged co-ordinated action in the largest single day of strikes the country has seen in more than a decade. Prime minister Rishi Sunak said the country could not afford significant increases in nurses pay.

Need to know: Global economy

Three of the biggest Big Tech firms Apple, Amazon and Google parent company Alphabet reported disappointing results yesterday. Apple suffered its first decline in quarterly revenues in nearly four years, blaming supply chain disruptions in China. Revisit our January Big Read on the company’s entanglement with China and its manufacturing sector.

Amazon, Meta, Alphabet and Microsoft will collectively foot charges totalling $10bn for recent rounds of job cuts and other cost-saving measures. Tech companies are responding to calls for leaner business practices following years of rising expenditures and a pandemic-era hiring boom.

However this did not deter Google from making a $300mn investment in generative AI start-up Anthropic. This underlines the influence that Big Tech is attempting to assert in this fast-developing digital sector.

Shell, Europe’s largest oil and gas company, yesterday announced record annual profits following the publication of its 2022 accounts. Adjusted earnings of almost $40bn reflect a year of tumult in energy markets sparked by the war in Ukraine. Bumper accounts for other oil majors will heighten calls for levies that go further than those introduced by several governments in the past year.

China’s pandemic workers are counting the cost of January’s decision to lift the country’s zero-Covid restrictions. Millions of dabai, or “big whites” on account of their distinctive personal protective equipment, are now unemployed after the Chinese state ended the mobilisation of pandemic personnel. In the case of migrant workers, many are stranded in cities.

Need to know: business

The turmoil surrounding the Adani Group continues to be felt. Stock losses by the Indian conglomerate reached the $100bn mark yesterday following a damaging report by short seller Hindenburg Research last month. On Wednesday the company announced it would suspend a planned $2.4bn share sale. TotalEnergies, one of Adani’s largest foreign backers, has defended its decision to invest in the ailing group.

Alphaville covers former FT journalist Jo Johnson’s abrupt resignation from Elara Capital, an investment bank with ties to Gautam Adani. It marks the second time Johnson has recently resigned from a company board.

In a wide-ranging interview with the FT, Broadcom CEO Hock Tan speaks of his wish to expand on a recent spate of dealmaking. The Malaysian-born executive has transformed Broadcom into a $250bn tech giant as he agrees to head the company for another five years.

Hiroki Totoki has been appointed as Sony’s president and chief operating officer. The former chief financial officer declared he was “obsessed with growth” at yesterday’s conference in Tokyo. Staying with management reshuffles, Heathrow boss John Holland-Kaye is to step down from the airport this year after almost a decade in the hot seat.

Science round-up

New medical imaging techniques powered by AI that work to identify a patient’s future likelihood of developing cardiovascular problems have begun to be used at several UK hospitals.

A US genetics start-up has announced plans to bring the long-extinct Dodo back to life. The last one is thought to have been hunted in the 1660s.

Biotech company RQ Bio has partnered with AstraZeneca to update its antibody programme for the immunocompromised in line with the latest Covid-19 variants. Evusheld 2.0 combines AstraZeneca’s original antibody with RQ’s new one.

Researchers at the University of Pennsylvania have raised the prospect of successful cerebral transplants in the near future after brain tissue implanted in rats was shown to successfully converse with the rodent’s own neurons. The team’s leader described it as a “very solid first step”.

Some good news

The future of three circular, late Neolithic/early Bronze age monuments near Ripon in North Yorkshire, known as the ‘Stonehenge of the North’, has been secured after English Heritage announced it would manage the site. Their original function or the intention of their builders remains a mystery. Each measures more than 200m in diameter.

Something for the weekend

The FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not try today’s cryptic crossword?