Friday, March 6, 2015

JOBS | On Good News, Fears of Sooner Rate Hike

The 295,000 payroll-jobs increase is well above expectations for jobs. Job numbers for January were revised down by 18,000, lowering the base, but even so, the increase suggests a breakout for the economy. This increases concern about the impact of the Fed moving earlier to higher interest rates. Some Fed officials think the February 5.5 percent unemployment rate is full employment.

Sectors showing strong job growth include:
  • Eating (food services) and drinking places - reflecting the American appetite for better food and ability to pay for it. This sector accounts for one-fifth of the job growth,
  • Professional and business services accounting for one-fifth of the growth. This sector has added 660,000 jobs during the past year. Key growth areas are management and technical consulting services, computer systems design and related services, and architectural and engineering services.
  • Construction, adding 29,000 jobs in February, despite worse-than-normal weather in parts of the country. (The BLS in a note says that unusually bad weather affects earnings more than employment.) Employment in specialty trade contractors rose by 27,000, mostly in the residential component.
  • Health care services, continuing to rise by 24,000 jobs, with gains mostly in ambulatory care services, with fewer gains in hospital jobs. The increase is lower than the average over the past 12 months. This number is an indicator of the net impact of Obamacare.
Earnings growth was slow. (The recent announcement of raises for workers at Wal-Mart and other large employers has yet to show up as significant changes in earnings data.) The full BLS report is here.

Comment 

Table A-6 shows the labor force participation rate rising year-over-year in February for men (to 81.8 percent from 81.4 percent for adult men without a disability) and declining for women (to 69.9 percent from 70.5 percent for adult women without a disability). It also rose for disabled people of both genders, to 19.8 percent from 19.1 percent.

The overall good news is that the U.S. economy is continuing its momentum. This is a relief for the rest of the world, which depends heavily on the U.S. recovery.

The downside is that the Fed will be poised to raise interest rates - from its existing near-zero level - sooner rather than later (June rather than September). In the zero-bound range the Fed has little room for positively affecting the economy - its foot is all the way down on the pedal. Letting the pedal up gives it room later to be helpful in a downturn.