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The February growth in jobs was better than expected (175K vs. 149K), despite the persistence of very bad weather, so the market has raised its expectations for future growth modestly, as can be seen in the 15-20 bps rise in Treasury yields this week.
The two charts above show the monthly change in private sector jobs and the six-month annualized rate of change in private sector jobs, respectively. Things have been a little soft so far this year, and the pace of jobs growth is likely to pick up as the weather warms up, so we could see 200K or so per month, or a 2% or slightly better pace going forward. If jobs grow at a 2% pace and productivity rises at the pace of the past two years (1%), that would give us real growth of about 3%. That would be an improvement from the 2-2.5% pace of recent years, but it's nothing to get very excited about. For things to really improve we'd need to see growth well in excess of 3% for at least several years.
Still, 3% growth is nothing to sneeze at, especially with the yield on cash still near zero and way below the yields available on risk assets. The longer the economy continues to expand, the more pressure there will be for short-term rates to rise (i.e., the Fed will not only have to continue to taper but perhaps accelerate its timetable for a reversal of QE) and for yields on risk assets to decline (i.e., for prices to rise).
As the chart above shows, the two surveys of jobs are tracking each other fairly well. The private sector has added 8-9 million jobs in the past four years, and private sector jobs are likely to reach a new all-time high within the next few months.
As the chart above shows, all of the gains in employment over the past two years have been in the private sector (public sector jobs have actually dropped by 89K in the past two years). This is encouraging, since the productivity of the private sector far exceeds the productivity of the public sector.
The unemployment rate ticked up to 6.7% mainly because the labor force has increased by almost 800K this year. That is probably due at least in part to the expiration of emergency unemployment benefits beginning January 1st. That affected about 1.3 million people, and it wouldn't be surprising if some portion of those have decided to more actively search for jobs. That's also encouraging.
14 comments:
LIPPER FUND FLOWS
Monthly January
Equity Fund Inflows $25.2 Bil;
Taxable Bond Fund Inflows $7.1 Bil
xETFs - Equity Fund Inflows $34.4 Bil;
Taxable Bond Fund Inflows $6.5 Bil
----------------------------
Weekly 03/05/2014
Equity Fund Inflows $10.3 Bil;
Taxable Bond Fund Outflows -$4.9 Bil
xETFs - Equity Fund Inflows $2.8 Bil;
Taxable Bond Fund Inflows $2.8 Bil
Weekly 02/26/2014
Equity Fund Inflows $7 Bil;
Taxable Bond Fund Inflows $3.2 Bil
xETFs - Equity Fund Inflows $2.5 Bil;
Taxable Bond Fund Inflows $2.7 Bil
Weekly 02/19/2014
Equity Fund Inflows $11.2 Bil;
Taxable Bond Fund Inflows $3.3 Bil
xETFs - Equity Fund Inflows $2.9 Bil;
Taxable Bond Fund Inflows $3 Bil
Weekly 02/12/2014
Equity Fund Inflows $6.9 Bil;
Taxable Bond Fund Inflows $6.7 Bil
xETFs - Equity Fund Inflows $3.3 Bil;
Taxable Bond Fund Inflows $2.6 Bil
Copper not so hot...
Hilsenrath: Fed shifting exit strategy
Seems the FED is taking SCott's advice:
"Federal Reserve officials are shifting their outlook on how to normalize monetary policy, according to a report by The Wall Street Journal's Jon Hilsenrath on Monday . After a prolonged period of bond-buying stimulus programs and near-zero benchmark interest rates, the central bank is considering how to exit those policies. The potential new plan involves paying interest on excess reserves in the banking system, as well as holding down rates through a "reverse repos" tool in which the Fed trades with firms outside the banking system who lend it cash in return for interest. That's a contrast with a previous plan to drain reserves from the system by letting Treasurys and mortgage-backed securities roll off its balance sheet as they mature, as well as using other technical tools, according to Hilsenrath."
http://www.marketwatch.com/story/hilsenrath-fed-shifting-exit-strategy-2014-03-10?dist=tbeforebell
Let me suggest that we are seeing job growth at 2.5%/year, and that past experience shows that is about as strong as job growth gets. The 'slow' recovery is the time needed to recover from a deep recession, not the rate at which there is recovery. A little math indicates that more frequent but shallower recessions could leave people better off. Note that I did noit say how to attain this outcome. Also there is a balance between 'more frequent' and 'shallower'.
Howdy Scott, unusual not to see an update for a week, hope all is well.
Mark: I'm fine, just finding myself with a lot less time to blog than I thought as a result of a big week skiing in Keystone.
PPI fell in Feb. up 0.9 percent on year...
Some doomer-porn for financial types:
Stock Bubble Driven by Central Banks to Burst in 2014, Analyst Warns
Mr. Janjuah, who is co-head of macro strategy research at Nomura, sees a lot to worry about, and he sees central banks, including the Fed, at the center of the factors that eventually will bring woe to stocks.
“The major themes are unchanged–anemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose monetary policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy,” the analyst says.
Mr. Janjuah says markets are now priced entirely for good news, leaving them vulnerable to adverse developments. But the main driver of the coming bursting of the stock market bubble, as the Nomura analyst sees it, is a much delayed rebalancing of the global economy as central banks pull back from all of their aggressive stimulus activities.
"The longer the economy continues to expand, the more pressure there will be for short-term rates to rise (i.e., the Fed will not only have to continue to taper but perhaps accelerate its timetable for a reversal of QE) and for yields on risk assets to decline (i.e., for prices to rise)."
So rising short-term rates will lead to yields on risk assets to decline? That's news to me.
"Mark: I'm fine, just finding myself with a lot less time to blog than I thought as a result of a big week skiing in Keystone."
I thought it has not been built?
Bloomberg: Inflation expectations over the next five years surpassed 2 percent
The Federal Reserve’s attempt to lift inflation to a level that would reflect a healthier U.S. economy is starting to take hold in the bond market.
For the first time in 19 months, investors are stepping up their buying of exchange-traded funds that hold Treasuries tied to cost-of-living increases, data compiled by Bloomberg show. At the same time, inflation expectations over the next five years surpassed 2 percent to reach the highest level since May after a government report showed hourly earnings among U.S. workers jumped more on average in February than economists forecast.
The shift in bond-market perceptions shows that some investors now anticipate consumer demand in the world’s largest economy will be strong enough to push inflation toward the Fed’s elusive 2 percent target. Last year, investors were so convinced the persistent lack of price pressure had become entrenched that Treasury Inflation Protected Securities, or TIPS, posted their worst losses since they were introduced in 1997.
“Inflation is coming,” Michael Pond, the head of global inflation-linked research at Barclays Plc, said in a telephone interview from New York. We’re starting to break “free from some of the deflationary shackles of last year. The labor market is picking up, which will cause wages to pick up.”
http://www.bloomberg.com/news/2014-03-16/inflation-seen-as-etf-flows-converge-with-u-s-investor-choices.html
Excellent, I can see how that might take priority over blogging
Re: inflation expectations. Increased purchases of TIPS are not necessarily reflective of increased inflation expectations. Inflation expectations are revealed in the difference between the yield on TIPS and the yield on Treasuries of comparable maturity. My reading of that (the so-called break-even inflation rate) is that nothing has changed in the past several years. Inflation expectations have been and remain around 2-2.5%.
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