Friday, March 8, 2013
The jobs market gave market bulls another reason this morning to keep the party going, with jobs increasing at a better than expected rate in February. But positive labor market momentum means that investors may have to start getting ready for the day when the Fed will no longer be its primary prop. And that is no small matter given the Fed’s centrality to the market’s gains. But we are not there yet and we should probably not spoil today’s fun with those worries.
The ‘headline’ February jobs numbers of 236K were significantly above expectations of about 160K. The consensus estimate did not rise much following the strong report from ADP on Wednesday given concerns about the effects of the Northeast snow storm, but many of us were still looking for a bigger number this morning. We had a strong February jobs report last year as well, when ‘headline’ jobs were up 271K - is there a February effect?
The revisions trend was mixed, with January down and December up, for a net negative effect of -15K. The January tally was down to 119K from 157K, while December was revised higher to 219K from 196K. The unemployment rate went down to 7.7% from 7.9%. The average work week edged up 0.1 hours to 34.5 hours, compared to expectations of ‘flat’ hours, while average hourly earnings increased inline with expectations by rising 4 cents to $23.82. The labor force participation rate remained ticked further down a bit to 63.5% in February from 63.6% in January.??????
Private sector jobs totaled 246K in February, with the government sector shedding 10K jobs. The private sector gains are significantly above January’s 140K level and December’s 224K tally, but below February 2012’s 265K gains. The February gains were concentrated in professional and business services (+73K in February vs. +16K in January), construction (+48K vs. +25K), and healthcare (+39.1K vs. +19.3K). The construction job gains were concentrated in specialty trade contractors, evenly split between the residential and non-residential areas.
If this report isn’t an outlier, then we can draw a couple of conclusions from it. First, there was no snowstorm effect, as many of us had suspected. But more importantly, the report shows that the labor market was in pretty good shape ahead of the onset of the budget sequester. We will have to see what in the coming months if the private sector can hold its own as the government sector sheds more jobs as a result of the austerity. With Fed angle is also important, but the issue is unlikely to take center stage unless we sustain this level of labor market momentum for a sustained period of time. For now, this is a good enough reading for market bulls to keep plowing higher.
Director of Research