The January report on employment conditions came in better than expected. This is especially true with many looking for weather related weakness.
The best piece of news was increase of 175,000 in February non-farm payroll growth that exceeded an expectation of 149,000. There were also upward revisions to to previous months with January moving from 113,000 to 129,000 and December from 75,000 to 84,000.
Within the February number, the leading area of growth was Professional and Business Services (76,000). Also viewed positively was growth in construction (15,000) and manufacturing (6,000) that occurred at a time when 626,000 workers (twice as high as January) stated they could not get to work. Also within February’s job growth was a high number of temporary positions which has created a bit of confusion among analysts.
The closely watched unemployment rate moved higher from 6.6% to 6.7% as the calculation included more people looking for work and potentially indicative of more job opportunities in the market. The unemployment rate that includes discouraged and underemployed workers moved slightly in the opposite direction with a decline from 12.7% to 12.6%.
The labor force participation rate was unchanged near historically low levels at 63%. Those with jobs saw wages rise slightly which was offset by lower average workweek hours that declined from 34.3 hours to 34.2 hours. Workweek hours were likely affected by the weather.
Overall, the report was good relative to weather related expectations and potentially sets the stage for better numbers over the next couple of months as weather factors ebb. The bond market also appears to agree with this assessment with the 10-year government treasury yield moving higher.
Furthermore, the news gives a green light for the Fed to move forward with reductions (aka tapering) in monthly bond purchases, and the central bank did just that on March 19 with its third reduction to its program of monthly bond purchases. While on the subject of the Federal Reserve, Chairperson Janet Yellen gave her first semi-annual reports to Congress with perspectives largely consistent with the data-dependent nature of her predecessor.
Lastly, developments in the Ukraine have inserted another risk factor for the markets. Ukraine in and of itself is not a significant systemic player but implications of Russian sanctions and relationship restrictions are significant. At this time, the market appears to think that the issue will be limited but only time will tell.
This is my best guess as well with the thought that all parties will ultimately determine that it is in their best economic and political interests not to push this to a major conflict.
DISCLAIMER: The investments discussed are held in client accounts as of February 28, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
