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Chilly Jobs Report Won’t Tamper With Tapering 

Kristina Hooper 

 

2/7/2014 

US Investment Strategist Kristina Hooper breaks down the January employment report, including what it means for the Federal Reserve’s plans to taper its asset purchases and the key takeaways for investors.
The January jobs report did little to convince investors that the economy is heating up, but the Fed is unlikely to freeze its plans to taper.

The US economy added far fewer jobs in January than economists were expecting—for the second straight month. And there was little revision to the anemic job growth we saw in December. It marks the weakest two-month stretch for job creation since January 2011. With the stock market under pressure in recent weeks, investors may be worried about whether the economy is losing steam.

But while volatility may rise, don’t expect the Fed to retreat from plans to taper its monthly bond-buying program. Under Ben Bernanke, and now Janet Yellen, monetary policy is data-driven. However, the Fed is taking a holistic view of the nation’s economic health.

Here are some key takeaways from the jobs report:

What Happened

January non-farm payrolls came in at 113,000, well below consensus expectations of 180,000.
The bigger question was about December job growth and whether that number was accurate. It showed only 74,000 jobs added, a big disappointment. The January report didn’t change that: December non-farm payrolls were revised upward by only 1,000 jobs.
There were some bright spots in the household survey. The unemployment rate moved lower to 6.6% from 6.7% in December and the number of long-term unemployed (people out of work 27 weeks or more) decreased. However, some of that improvement could be due to the expiration of Emergency Unemployment Compensation.

What It Means for Investors

1. Expect higher volatility in the short run. It’s all about what this jobs report does to the Fed’s tapering timeline. And the markets are likely to be volatile today as investors try to decipher how this jobs report impacts the unwinding of QE, if at all.
2. The January jobs report is unlikely to alter the course of tapering. The Fed is looking much more holistically at the economic recovery. The jobs report is one small part of a much larger mosaic; the Fed would need to see many more signs of a deceleration in the recovery before it’s likely to make any changes to tapering.
3. The economic recovery remains flawed. We think this jobs report indicates that the recovery is continuing, but it remains flawed. It signals an unbalanced labor-market expansion, with some sectors increasing jobs while others—particularly retail—are reducing jobs.
4. Expect monetary policy to be “looser for longer.” Even though the unemployment rate fell further, the Fed will remain “behind the curve” supporting economic growth. We remain in an environment of financial repression, in which investors need adequate exposure to risk assets.




The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.

 

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