All week seemed like a build up towards the final unemployment data for February… It hit the market like an uppercut on Friday…
Unemployment Summary
The unemployment data was favorable over all. The rate of unemployment fell .2% to 5.5%, its lowest level since 2008. 295,000 jobs were added in February. This marked the 12th straight month with job gains in excess of 200,000. The initial claims number rose to nearly 305,000 per week[1]. While job creation is generally supportive, wage growth is stagnant and average hours worked shows a negligible change.
Federal Reserve Board (FRB)
So if the overall jobs data indicated improvement, why does it feel like the market got knocked the heck out on Friday? Improving employment and wage growth (which was stagnant) leads to additional consumer spending, which leads to productivity capacity, which leads to consumer prices rising, A.K.A. inflation. The FRB will be meeting on March 17-18. While it is not expected they will raise rates at this meeting, everyone will be watching for any indication of when rates may change.
The overwhelming opinion across the market is a rate hike starting sometime this summer. To this point the FRB has been very clear that monetary policy will be dictated by the economic data that gets released as opposed to a concrete timeline. Strengthening data, specifically data impacting inflation, will lead to a rise in rates. While oil remains weak, it will take time for inflation to regain momentum causing increased inflationary concerns.
Oil
Oil prices continue to struggle. Energy in general has been a weak point over the last several months. This has contributed to deflationary concerns in the majority of the world. It has also eased inflationary concerns within the US. For the month of February, energy prices were down 10.3%[2] contributing to a reduction in the US trade deficit as oil import costs decreased substantially.
International Data
The European Central Bank (ECB) will begin their bond buying program on March 9, 2015 and China has projected their annual growth rate at 7%, a fall from the 7.5% GDP projected for the 2014.
There is an ongoing trend of monetary easing around much of the globe currently. The US continues to flirt with tightening monetary policy and is expected to make the first move some time this year. This overall environment continues to support a strengthening dollar, as has been the trend over several months.
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[1] www.mfs.com – week in review
[2] www.jpmorganfunds.com – economic update