With a 175 rise in February and a net 25k upward revision to the two prior months, payrolls were significantly stronger than the 149k consensus estimate, despite unusually severe weather. Our forecast was 130k as we expected to see negative weather effects also in today’s report.
Unemployment rose to 6.7% from 6.6% in January, but the decline was mainly due to a 264k rise in the labour force, while employment according to the household survey saw a modest 42k gain following a sharp 638k increase the month before. The labour force participation rate was unchanged 63%. The consensus and our unemployment forecast was 6.6%.
Also on positive side, average hourly earnings increased 0.4% m/m in February, up 2.2% y/y, the strongest annual increase since November. On the negative side, at 34.2 hours the average workweek was weaker than expected, likely held down by the bad weather.
Implications for the economic outlook
The survey week of today’s jobs report coincided with the big East Coast snowstorms, and the report does contain signs that weather was an important drag on February’s job growth, see below.
Against this background today’s rebound in jobs growth supports our view that the recent string of weak US economic data including two straight below-trend gains in payrolls is manly weather-related noise, rather than representing a genuine slowdown in US economic growth. Moreover, consumer confidence indicators have recently generally remained stable, and this increases our confidence that the underlying trend in economic growth has not suddenly deteriorated. More importantly, with economic fundamentals as good as they have been for decades, preconditions are still in place for much stronger growth in 2014.
Thus once the weather turns more seasonal, economic activity is therefore still expected to snap back.
Clear signs of negative weather effects in February
Weather was an important drag on February’s job growth. Thus according to the household survey, the number of workers not at work because of weather was 601k, a 339k increase from January. Because this 339k increase is a not seasonally adjusted figure, we have to compare it with past Februarys, which have averaged a swing of +27k in the past 10 years. The difference probably overstates the impact on payrolls, but the direction is probably telling of the weather impact on payrolls.
Implications for Fed policy
With today’s positive surprise from the US labour market we have little doubt that the Fed will continue trimming its monthly bond purchases by USD 10bn increments at the 18-19 March FOMC meeting, as the bar seems quite high for slowing the taper. For the Fed to deviate from its current steady pace of cuts in the bond buys, “the outlook would have to change in a material way relative to my expectations,” New York Fed president Dudley said yesterday, in line with earlier signals from Fed chairman Yellen.
The fact that the unemployment rate rose to 6.7% in February eased the pressure on the FOMC to modify its forward guidance already at the March meeting. Still, recent comments from Fed officials suggest the FOMC is likely soon to shift away from the current quantitative unemployment rate threshold of 6.5% toward a more qualitative description of broader labour market conditions. A lowering of the 6.5% threshold seems rather unlikely because FOMC participants clearly disagree about how much of the recent decline in unemployment is cyclical rather than structural.
Nordea