February Jobs Report Beats Expectations
The February Employment Report beat expectations of 200,000 new jobs with 379,000 jobs created. Private payrolls were even better with 465,000 new jobs. In addition, the prior two months were adjusted higher with 38,000 more jobs than initially reported. We mentioned last month that January is a notoriously difficult month to project even in the best of times given post-holiday staffing cuts which leads to large seasonal adjustments and that was the case as January saw a revision upward from 49,000 new jobs to 166,000. Meanwhile, the unemployment rate ticked lower to 6.2% after dropping four-tenths in January as many workers left the labor force. A trend the Fed will want to see reverse. The underemployment rate, a broader measure of unemployment remained at 11.1%. It was 7.0% this time last year. Also, the labor force participation rate (labor force/civilian population) remained at 61.4% after dipping from 61.5% in January. It was 63.3% a year ago, prior to the pandemic. Until the underemployment and labor force participation numbers return to pre-pandemic levels, indicating something close to full employment, the Fed will be very patient before tightening monetary policy, and that still seems a couple years away.
- For the month, 379,000 jobs were created versus an expectation of 200,000. Private payrolls surged even more gaining 465,000 jobs versus 90,000 in January. In addition, the prior two months were adjusted higher by 38,000 jobs with January alone adjusted from 49,000 jobs to 166,000. As mentioned above, January is a problematic month given the large seasonal adjustments that are made and when you add in the issues around the virus there was bound to be significant revisions. The services sector as a whole gained a strong 513,000 jobs with leisure/hospitality leading the way with 355,000 new jobs as virus case counts dropped and reopenings surged. For a third straight month temporary help services had solid gains, this time posting 52,700 new jobs. Goods-producing jobs, however, fell 48,000 for the month with construction dropping 61,000 positions with foul weather no doubt playing a role. Expect that to reverse in March assuming the weather improves. Meanwhile, manufacturing added 21,000 new jobs.
- The unemployment rate dipped again to 6.2% after it dropped four-tenths from December to January. Much of that drop however was from annual benchmarking changes which lowered the labor force which is a trend the Fed will want to see reverse. 6.2% is the lowest rate since the pandemic hit but recall the rate was 3.5% this time year ago. Fed Chair Powell has laid out one of the three criteria to lifting the fed funds rate is a return to full employment. If we use that 3.5% rate, or close to it, as a marker for full employment we’re still 2.7% away. The Household Survey—which is used to generate the various employment ratios— found unemployed persons fell by 158,000 to 9.972 million. The labor force participation rate (labor force/civilian population) remained at 61.4% for a second straight month as there was little change in both for the month. It was 63.3% a year ago. Finally, the underemployment rate which is a broader measure of unemployment as it adds those working part-time but wanting full-time work and those marginally attached to the labor force (out of work and not having looked for a job in the preceding four weeks) remained at 11.1% for a second straight month. It was 7.0% prior to the pandemic. This is a key number for the Fed in deciding whether we are back to full employment and as you can see we’re still a long way off.
Heat Map of Economy Almost All Green
We came across a heat map yesterday from our friends at Citigroup and thought it presented a powerful message. While the font is quite small crammed into our limited space, notice all the economic indicators have shifted from red/orange back in March and April, 2020 to almost all green at the end of February 2021. The only exception are some low inventory numbers which implies future growth via inventory restocking. This economic optimism is one reason we’ve seen the rapid yield increases recently as the economy appears to be firing on all cylinders and with an additional $1.9 trillion in stimulus about to enter the system. That’s why we think yields will probe higher in the weeks/months ahead but not at the speed we saw last month.
Mortgage Rates Seem A Long Way From Operation Twist
While everyone has been fixated on Treasury yields climbing like that dude who free soloed El Capitan in Yosemite, mortgage rates have been climbing too, albeit with much less fanfare. And sure, 30-year mortgage rates have moved up almost 40bps from a recent low of 2.82%. But look at where rates have been in the last six years, mostly much higher than now, even with the recent bump. The point is mortgage rates still seem a long way from killing the residential housing market which the Fed does want to prevent. But expecting Operation Twist, or longer duration QE buying, seems a tad early given the graph of historical mortgage rates. The average over the past six years is 3.84% which is 66bps away. Chair Powell might say, “see me then.”
|Treasury Curve||Today||Chg Last Wk.||LIBOR Rates||Today||Chg Last Wk.||FF/Prime||Rate||Swap Rates||Rate|
|3 Month||0.03%||Unch||1 Mo LIBOR||0.10%||-0.01%||FF Target Rate||0.00%-0.25%||3 Year||0.438%|
|6 Month||0.06%||+0.02%||3 Mo LIBOR||0.19%||-0.01%||Prime Rate||3.25%||5 Year||0.912%|
|2 Year||0.14%||+0.01%||6 Mo LIBOR||0.21%||-0.01%||IOER||0.10%||10 Year||1.643%|
|10 Year||1.57%||+0.16%||12 Mo LIBOR||0.28%||Unch||SOFR||0.02%|
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