Bond Boost From Jobs Report Won't Last

For more commentary from Tony Crescenzi and his instant reactions to the latest economic news, check out his blog on RealMoney.com.

The employment report contains a mix of information that will lead many investors to conclude that the economy is neither too hot nor too cold -- just right, in other words. This is a fairly rational conclusion to be drawn from the report in and of itself, but the relatively strong pace of job growth seen over the past few months creates risk for the bond market that sets the table for another round of weakness in the weeks to come.

Payrolls expanded by 111,000 in January, 39,000 fewer than expected, but revisions to the prior three months were upward by 99,000, making the data stronger than expected. This aspect of the report is bearish for the bond market, and it's the factor that I believe will affect the bond most of all when the dust settles.

Initially, though, the bond market will be distracted from this bearish element and focus instead of some of the more bullish elements such as wages, the workweek and the unemployment rate.

Three Factors Helping Bonds

Taking a closer look at these supposed bullish elements starting with the wage figure: Average hourly earnings were reported up 0.2% in January, one-tenth of a percentage point less than expected. In addition, the prior month's 0.5% gain was revised downward to 0.4%.

The figures brought the year-over-year gain down to 4.0% from December's 4.2%, which was the highest level since November 2000 and just 0.2% below the 24-year high of 4.4% set in March 1998 and June 1990. The bond market has been fearful about accelerating wage pressures, so today's figure will calm some of these fears.