Better-Than-Expected Jobs Data Greenlights Another Fed Taper
- The February Payroll Employment Survey showed a better-than-expected gain of 175,000 jobs.
- The Unemployment Rate for February increased to 6.7 percent with a weak gain in household employment.
- The U.S. International Trade Gap widened slightly to $39.1 billion in January.
- We expect the Federal Reserve to announce another $10 billion reduction in asset purchases on March 19.
We are seeing evidence that the U.S. economy is digging out from underneath this winter’s snow pile. Payroll jobs for February increased by 175,000, better than consensus expectations. Expectations for job growth fell this week after the ADP survey showed a gain of 139,000 private sector jobs for the month, and the ISM Non-Manufacturing Index for February showed contracting employment. The average workweek for all employees edged down to 34.2 hours in February. Average hourly earnings for February were up 2.2 percent over the previous 12 months. The household survey of employment did show some weather effects for the month, and posted a weak overall gain of 42,000 jobs. The weak gain in the volatile household employment series, combined with a strong gain in the labor force, drove the unemployment rate back up to 6.7 percent. This should not be taken as a sign of weakness in the labor market. Both the household employment series and the labor force series have been quirky lately, enough to render one-month changes in the unemployment rate meaningless. Construction industries added 15,000 jobs in February. Manufacturing employment was up by 6,000. Wholesale trade added 14,800 jobs, while retail trade dropped 4,100. Financial services employment was up 9,000 for the month. Professional and business services added a strong 79,000 jobs in February. Education and healthcare, which was surprisingly weak in January, added 33,000 jobs in February. Leisure and hospitality industries added 25,000, while the government sector gained 13,000 jobs. The U.S. international trade gap widened slightly in January to $39.1 billion. Imports increased by $1.3 billion in January while exports increase by $1.2 billion.
Today’s solid jobs report for February gives the Fed a green light to continue tapering its asset purchases by another $10 billion at the upcoming March 18/19 meeting of the Federal Open Market Committee. The FOMC is also expected to modify its forward guidance for the fed funds rate, downplaying or eliminating the concept of an unemployment “threshold.” We continue to expect no increase in the near-zero fed funds rate this year. The first increase in the fed funds rate is expected around mid-2015.
Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is up to 2.80 percent. NYMEX crude is up to $102.18/barrel. Natural gas futures are down to $4.60/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Employment 03-07-14.