Article / 07 March 2014 at 15:19 GMT

Nonfarm payrolls defy bad weather

Head of Macro Strategy / Saxo Bank
Denmark

• US economy adds 175,000 non-farm payrolls
• Unemployment rate disappointing
• QE tapering likely to be put on hold

By Mads Koefoed

Bottom line: The US economy added 175,000 non-farm payrolls in February while the unemployment rate ticked up to 6.7 percent. Employment growth should accelerate from here in line with the overall economy and keep the US Federal Reserve to its tapering schedule.

US labour market
Source: Bloomberg, Saxo Bank

Better-than-expected payrolls: Concerns about the unusually bad weather were cast aside as the February edition of the US employment report showed a gain of 175,000 non-farm payrolls. This figure was above expectations of 149,000 and better than January's 129,000. Speaking of January's upward revision of 16,000, there was another positive aspect of the report, with a further 9,000 added to December's payrolls figure, making a total of 25,000.

Hours worked and wages mixed: Average hourly earnings added to the positive sentiment with a jump of 0.4 percent month-on-month (0.2 percent expected), the highest since June of last year when a similarly sized gain was recorded. Less impressive was the weekly hours category, which ticked down to 34.2 from a downward revised 34.3 (from 34.4) against expectations of 34.4. However, the bad weather is likely to have been a key factor here. In fact, the Bureau of Labor Statistics writes specifically that "Unusually severe weather is more likely to have an impact on average weekly hours than on employment."

Hours worked and hourly earnings
Source: Bloomberg, Saxo Bank

Unemployment rate rise: While payrolls were better than expected (and even more so considering revisions) the same cannot be said for the unemployment rate, which rose by 0.1 of a percentage point to 6.7 percent. The participation rate was unchanged at 63 percent but most of the 264,000 people entering the labour force in February did not find a job. Indeed, only 42,000 did so, meaning that those unemployed rose by 223,000*. However, the 42,000 increase in employment was good enough to send the six-month moving average up to 181,000 from 157,000 indicating that most of the weakness in this series can be traced to Q4 rather than the current quarter.

Payrolls vs. household employment
Source: Bloomberg, Saxo Bank

Overall, the February employment report was better than expected. Moreover, I expect that employment will pick up alongside the general economy heading into Q2 and indeed, the rest of the year. Furthermore, there is nothing in today's report to suggest that quantitative easing (QE) tapering will be put on hold in March. On the contrary, the report will probably convince the Federal Open Market Committee (FOMC) that the economy is not only strong enough to weather QE tapering, but also robust enough to add 175,000 jobs even while snowstorms raged.

 

* Allowing for rounding errors.

07 March
Mads Koefoed Mads Koefoed
Private payrolls rose by 162,000 in February, meaning that the level is now just 129,000 below the peak back in January 2008. Unless we get a really poor March employment report, it will mark a new all-time high in private sector employment in the US.
07 March
Mads Koefoed Mads Koefoed
QE tapering UNLIKELY to be put on hold.

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