Investors reacted positively last Friday to a February jobs report that beat estimates and revealed that the employment picture in the U.S. is on solid footing, lowering recession fears ahead of an important monetary policy meeting next week at the Federal Reserve.
On Friday the Dow finished up 0.37 percent, the S&P 500 gained 0.33 percent, and the Nasdaq rose 0.20 percent.
The U.S. Labor Department reported on Friday that total non-farm employment increased by 242,000 in February, beating the 190,000 consensus forecast from briefing.com, while the U.S. unemployment remained at 4.9 percent, an 8 year low.
During the past 3 months, job gains have averaged 228,000 per month.
The largest employment gains in February came in health care and social assistance which added 57,000 jobs. Over the past 12 months, hospitals have added 181,000 jobs.
Retail added 55,000 in February and construction gained 19,000.
Average hourly earnings for all employees on private nonfarm payrolls declined by 3 cents in February to $25.35 after an increase of 12 cents in January.
For the year, average hourly earnings is up 2.2 percent.
The employment numbers for December and January were revised higher by 30,000. December’s job number was revised from 262,000 to 271,000, and January’s job number was revised from 151,000 to 172,000.
Last Wednesday private payroll processor ADP reported a stronger than expected employment report for February with 214,000 private payroll jobs added to the U.S. economy.
“Large businesses showed surprisingly strong job gains in February, despite the continuation of economic trends that negatively impact big companies like turmoil in international markets and a strengthening dollar” said Ahu Yildirmaz, VP and head of ADP Research Institute.
“The gains were mostly driven by the service sector which accounted for almost all of the jobs added by large businesses” Yildirmaz admitted.
The Case For An Interest Rate Hike At The Fed’s Next FOMC meeting March 15-16th.
Besides watching the labor market for signs about the stability of the economy, central bankers at the Federal Reserve also pay close attention to inflation data, particularly the Core PCE Index, the Fed’s preferred inflation gauge, in addition to data related to U.S. GDP and emerging developments in global markets.
Latest inflation data from January shows that U.S. inflation is increasing despite the downturn in crude oil prices which tumbled in January.
The PCE (core) price index, excluding food and energy, increased 0.3 percent in January, higher than the 0.1 consensus from briefing.com, and up from 0.1 percent in December.
Excluding food and energy, the January PCE (core) index increased 1.7 percent from January a year ago, up from up from the previous month’s upwardly revised 1.5 percent, marking the largest month over month rise since January 2012, and the highest annualized level since February 2013.
At 1.7 percent in January, inflation is clearly moving closer to the Fed’s 2 percent inflation target.
The second estimate of 4Q 2015 GDP also came in higher than expected on February 26th with a reading of 1.0 percent versus the 0.4 percent consensus from briefing.com and up from the 0.7 percent in its first estimate.
Committee members at the Fed will have solid employment data from February and the PCE inflation report for January which shows that inflation is moving closer to it’s 2 percent inflation while 4Q 2015 GDP was revised higher.
During Fed’s 2 day policy meeting from March 15-16th, committee members will be reviewing all of those economic data points and weigh the Fed’s monetary policy against a tide of monetary policies across the globe that remain accommodative and loose with easing measures and negative rates.
At the Fed’s policy meeting in December, committee members projected 4 interest rate hikes on the plot chart. The chart will be revised at the March FOMC meeting which will be followed by a press conference by Fed Chair Janet Yellen.
ECB In the Global Spotlight This Week
On March 10th the European Central Bank (ECB) will make a monetary policy decision that will impact global markets.
The ECB is expected to provide some further easing measures at their March 10th meeting that could further pressure the euro.
The market expects a deposit rate cut of at least 10 basis along with an increase of €10 to 20 billion in their monthly asset purchases and an extension of their €60 billion monthly quantitative easing program that will continue at least through September 2016.
Speaking on February 15th before the European Parliament’s Economic and Monetary Affairs Committee, ECB President Mario Draghi explained the guideline that will be used to determine whether further easing measures are needed.
“As we announced at the end of our last monetary policy meeting in January, the Governing Council will review and possibly reconsider the monetary policy stance in early March. The focus of our deliberations will be twofold” Draghi said.
“First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices” Draghi added.
According to Euro stat, consumer prices in the 19 member euro area turned negative for the first time in 5 months and declined 0.2 percent year over year in February after rising 0.3 percent in January.
Falling crude oil prices is the likely reason for the decline.
The Week Ahead
Besides paying attention to a monetary policy from the ECB on Thursday March 10th, Federal Reserve Vice Chairman Stanley Fischer will be speaking on Monday at the NABE Economic Policy Conference.
U.S. economic data is light this week.
A U.S. crude inventory report will come in focus on Wednesday after the last inventory report from March 2nd revealed a 10.374 million barrel buildup.
According to a February 9th IEA world report, they retain their view that with crude oil demand having peaked, at a five-year high of 1.6 mb/d in 2015, global oil demand growth will ease back considerably in 2016 to 1.2 mb/d at 1.2 percent.
The next IEA report comes out on Friday March 11th and will offer projections for oil supply and demand 12-18 months ahead.
Tonight there will be a Democrat debate from Flint, Michigan ahead of their primary nominating caucus on Tuesday. According to a Marist/WSJ NBC poll, Clinton is leading Sanders in Michigan.
Trump is also ahead of Cruz in the same poll.
Full U.S. Economic Calendar
Monday- U.S. Consumer Credit (January)
Wednesday- Crude Inventories (3/5), MBA Mortgage Index (3/5), Wholesale Inventories
Thursday- Initial and Continuing Jobless Claims, Natural Gas Inventories (3/5), Treasury Budget
Friday- Export/Import Prices