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Jobs Upside Surprise Should Work for Investors 

Kristina Hooper 



US Investment Strategist Kristina Hooper delivers a quick take on the February employment report and what it means for markets and the Fed.
Everybody loves a good underdog story. And today’s jobs report was exactly that.

The US economy added 175,000 jobs in February, blowing past low expectations fueled by conflicting labor-market data and bad weather. Indeed, the ADP report released earlier this week showed the economy added only 139,000 private-sector jobs, while the ISM non-manufacturing data revealed the second biggest monthly decrease in its employment index in 16 years—the biggest one came in November 2008. Meanwhile, the Fed’s anecdotal Beige Book report made 119 mentions of “weather” impacting economic conditions.

However, that set the stage for a real positive surprise, which investors almost always appreciate. Key metrics from the jobs report show a slight improvement in the health of the labor market:

Non-farm payrolls grew substantially. The “snowpocalyptic” weather didn’t seem to have a big impact on job growth, with 175,000 jobs added – well above expectations. And January and December were revised up slightly.
The unemployment rate ticked up to 6.7% from 6.6%. This is actually good news, as it puts a bit more distance between the unemployment rate and the Fed’s 6.5% target. While it’s not as rigid of a goalpost as it once was, it would likely spook the markets because of its potential to stir debate among FOMC members about raising the fed funds target rate.
Hourly wages moved higher. Barring revisions, the rise in average hourly wages is impressive even if hours worked dropped (probably due to weather.) The 2.2% rise in average hourly wages over the past 12 months has been a stealth accomplishment, especially with inflation so muted. Perhaps the wage gain reflects some tightening of labor-market conditions that the headline numbers have not picked up, particularly in certain regions and in individual occupations.

But significant issues remain. Specifically, what I call the “persistently unemployed”—those out of work 27 weeks and more—remains stubbornly high, and actually grew this month. This is a “hot-button” issue for Fed Chair Janet Yellen and other central bankers. And despite improvement in non-farm payrolls, the three-month average is just 129,000, well below the 12-month average of 189,000.

The bottom line for investors: We got much better news on job growth than we thought. And the unemployment rate inching higher was actually a good thing because it staves off the debate among FOMC members over raising short-term rates. Equity investors will likely react positively—particularly given some of the fear that had crept in earlier this week following sluggish jobs-related data.

There was nothing in today’s jobs data that would suggest any changes to the Fed’s taper timeline. However, there were enough flaws in the report to suggest the economy still needs monetary-policy support. Expect continued accommodation from the Fed. Think looser for longer.

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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