Jobs Report Exceeds Expectations

Today’s report of new jobs added in February came in well above analysts’ estimates. Before the release of the report, analysts estimated that a total of 190,000 new jobs were added in February. According to today’s report, there were 235,000 (nonfarm payroll) new jobs added in February. This is the second month in which the report has exceeded expectations. January’s report came in at 238,000, again going beyond analysts’ estimates.

Noteworthy in today’s report was the fact that average hourly earnings increased 2.8% from last year, and the jobless rate is at 4.7%.  The majority of the 235,000 new jobs added last month were composed of positions in construction and manufacturing. Retail positions, however, fell by 26,000 jobs, which is the largest decline in that job sector in four years.

The Trump Effect

It is also worth noting that February’s jobs report was the first report since President Trump took the oath of office on January 21.  Many analysts agree that the increased optimism is a direct result of President Trump's policy agenda in which he pledges to create more jobs, cut taxes, create major infrastructure projects, and reduce industry regulations.

In an interview with Bloomberg News chief economist of Action Economics, Michael Englund said “It’s clear that sentiment has moved powerfully bullish” since Trump’s election. While two strong months aren’t enough to establish a clear trend, “it’s hard to argue that this would have no effect at all” on hiring. 

Lock and Load

One of the most significant outcomes of today’s jobs report is the effect these numbers will have for members of the Federal Reserve who will meet next week. In a speech made to the Economics Club of Chicago last Friday, Fed Chairwoman Janet Yellen stated: “Indeed, at our meeting later this month, the Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal fund's rate would likely be appropriate.” 

Based upon today’s jobs report, the data has shown that employment is continuing to evolve in a robust manner, which is probably in line with the Feds expectations. As such, it is highly anticipated that next week’s FOMC meeting will result in an interest rate hike. The question remains as to how much of a rate hike will be forthcoming this month. According to CME’s FedWatch tool, there is 90.8% probability that rates will be increased by 75 to 100 basis points (100 basis points equals 1%).

Wishing you as always, good trading,