- NFP clears doubts about next taper.
- High rate of people unable to work could trigger significant rise in jobs in March.
- Stronger wage growth clears remaining deflation worries.
The better than expected gain of 175K jobs in February, despite bad weather, leaves clearer skies regarding the first decision of Fed Chair Janet Yellen: another tapering of bond buys from $65 to $55 billion on March 19th.
Here are 5 reasons supporting another taper:
- Jobs gained despite cold weather: This is the most obvious reason. While the job gain could also be seen as a distortion, this time a positive one, bad weather has better chances of pushing data lower than pushing it higher. The solid gain, within data seen in previous months, is a good sign.
- Weather effect double than normal: February sees many people unable to go to work. According to estimates, this February's effect was double than normal, with around 600K unable to go to work. A normal March would bring them back to work.
- Higher wages: Also here we had a double than expected rise in average hourly earnings: +0.4% instead of 0.2%. This could be explained by paying for people unable to work, but the widespread rise could also be a positive sign for the wider economy. Higher wages mean higher inflation, pushing back fears that the Fed might pause tapering because of lower prices.
- Low real unemployment rate: U-6 is a wider measure of unemployment counting also those discouraged to go to work. The figure also dropped to 12.6%, which is certainly encouraging. As the Fed looks at many unemployment figures, this wider measure is also supportive of tightening (or a not too loose monetary policy).
- Upwards revisions: While they weren't impressive, a gain of 25K jobs in past revisions also improves the picture and lifts the long-term average. Data from previous winter months is clearing up in the right direction.
All in all, the Fed was already on course to taper for many other reasons and this report just cemented the taper.
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