February Jobs Data Keeps the Fed on Hold
New employment data allayed recession concerns—and Action Economics doesn't expect policymakers to change course at the Mar. 21 meeting
The release of the U.S. February employment report on Mar. 9 significantly eased concerns that the economic statistics for the month would reignite the recession fears of the fourth quarter. Otherwise significant reports for trade and the wholesale sector released the same day were lost in the background.
Nonfarm payrolls rose 97,000 in February, from an upwardly revised 146,000 in January (111,000 previously); December's increase of 206,000 was also revised to 226,000, for a net change of 55,000 change. The unemployment rate fell from 4.6% to 4.5%. Average hourly earnings rose 0.4% after a 0.2% increase in January, while December's 0.4% gain was revised to 0.5%. On a year-over-year basis, earnings were steady at 4.1%. Hours worked fell to 33.7 vs. 33.8 in January.
Construction jobs fell 62,000, more than reversing the gains over the prior two months. Service-producing jobs climbed 168,000, and government added 39,000. The headline figure was right in line with the economists' median forecast but significantly outperformed so-called whisper numbers.
Change in the Weather
The report revealed almost exactly the expected weather-distorted mix given February's harsh storms throughout the U.S., and workers "not at work due to bad weather" soared to 505,000 workers, which is the highest reading since 1979. Nevertheless, we will want to see a drop in claims levels in March to be fully comfortable with the "weather assessment" for the entire February jobs shortfall.
The report also revealed the upward revisions to jobs that have become fairly consistent, making it likely that the February figure will be revised upward as well.
We now assume a 0.3% February personal income gain that will leave disposable income poised for a solid 6.0% first-quarter growth rate, which translates to a 3.3% rate in real (adjusted for inflation) terms. We now project a 0.4% industrial production gain in February, as a 6% bounce in vehicle assemblies, and likely strength in utility output, boosts the figure.
Overall, the mix of U.S. data released Mar. 8—which also included a 0.9% decline in January wholesale sales and a narrowing of the U.S. trade deficit to $59.12 billion that month, from a revised $61.45 billion in December—remains consistent with the view that the U.S. inventory correction will continue through the first quarter, before inventories return to adding to gross-domestic-product growth rather than subtracting. The employment figures helped contain the downside risk to growth, and trade will continue to add positively to GDP growth in the first quarter.
The news from the February jobs report should leave the Federal Open Market Committee, the Federal Reserve's policy-setting arm, on hold over the near term with no significant changes to their policy statement on Mar. 21. That should leave the Fed with a bias toward higher rates and reiteration of the phrase, "the Committee judges that some inflation risks remain."
Of course, the Fed may acknowledge the volatility in the markets at the beginning of the month and the concerns over the housing market. But the February employment report can give policymakers confidence that "the economy is likely to expand at a moderate pace over coming quarters." We expect a unanimous vote for this stance.