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Labor Participation Rate Declines Further

03/08/2013

Friday morning, March 8, 2013, the Department of Labor released the February jobs report. Let’s take a look…

  • February Nonfarm Payrolls rose 236,000 ahead of last month’s +119,000 and consensus estimate of +165,000
  • February Private Payrolls rose 246,000 ahead of last month’s +140,000 and consensus estimate of +170,000
    • January Nonfarm Payrolls was revised down from +157,000 to +119,000
    • January Private Payrolls was revised down from +166,000 to +140,000
  • The Unemployment Rate (Figure 1.1) fell from 7.9% in January to 7.7% this month
  • The Labor Force Participation Rate fell to 63.5% from 63.6% last month, the lowest level since September 1981
  • Weekly hours worked rose to 34.5 from 34.4
  • Average hourly earnings rose 0.2% month on month
  • The Underemployment Rate fell from 14.4% in January to 14.3% this month

COMMENTARY:

The February Labor report on balance is stronger than expected, despite modest revisions to last month, and consistent with the positive data this month from ISM Manufacturing, Vehicle Sales, ISM Non-Manufacturing and Mortgage Apps. The continued recovery in the U.S. housing market is also evident within this report with construction jobs increasing 48,000.

This month’s economic uptick presents a small upside risk to the consensus 2013 GDP forecast of 1.8% (Figure 1.2). However, I caution investors not to extrapolate from the recent data any immediate change to FOMC monetary policy. The Fed will correctly view, and has acknowledged, the decline in the unemployment rate as highly correlated to the continued decline in the labor force participation rate.  The FOMC next meets on March 19-20 with Chairman Bernanke’s press conference at its conclusion.

Equity indices have resumed their prevailing bullish trends after spending the final week of February in what I categorized as a “pause in appreciation.” After this morning’s labor report was released, the U.S. 10-year Treasury (Figure 1.3) traded to its highest level this year at 2.085%. I expect the 10-year Treasury to next target 2.15% in the near term.

The Japanese yen (Figure 1.4) fell another 1% to reach its lowest level since August 2009. The VIX (Figure 1.5) declined to 12.49, its lowest level since February 20. The S&P 500® Index (SPX) (Figure 1.6) appears well positioned to challenge its October 2007 all-time high of 1576.09, as long as near-term support holds above 1530 on a closing basis.

Figure 1.1 U.S. Unemployment Rate August 2008 to Present
 
Source: Bloomberg

Figure 1.2 U.S. 2013 GDP Consensus Estimates
 
Source: Bloomberg

 Figure 1.3 U.S. 10-Year Treasury March 2012 to March 20013
 
Source: Bloomberg

Figure 1.4 Japanese Yen August 2009 to Present
 
Source: Bloomberg

Figure 1.5 VIX January 2012 to March 2013
 
Source: Bloomberg

Figure 1.6 SPX Year to Date with 1530 Support Level Annotated
 
Source: Bloomberg

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