February jobs report exceeds expectations

The month of February is the worst month for winter weather, and this February was particularly harsh across much of the U.S. Last year’s winter was also particularly harsh, and caused a temporary first quarter dip in economic output. We’ll have to wait for the first quarter numbers to see how economic output has been affected by this winter.

Despite this harsh winter, the jobs recovery continues to  pick up speed. The February jobs report actually exceeded the  expectations of economists. Steve Benen has the February jobs numbers. Jobs boom continues, unemployment falls:

By most projections, economists expected U.S. job growth in February to cool a bit, slipping from its fast pace in recent months. Fortunately, the projections were wrong — a proper jobs boom is underway.

The new report from Bureau of Labor Statistics shows the U.S. economy added 295,000 jobs in February. The overall unemployment rate dropped 5.7% to 5.5%, reaching its lowest level since May 2008 — nearly seven years ago.

In terms of the recent revisions, the picture looks largely unchanged. December’s totals held steady at 329,000 jobs, while January’s picture was revised down slightly, from 257,000 to 239,000.

FebruaryJobs

All told, the U.S. has added an amazing 3.3 million jobs over the last 12 months. In fact, we’ve had 12 consecutive months of job growth over 200,000 — the first time Americans have seen this since 1984, more three decades ago. (Update: it’s also the first time we’ve seen private-sector job growth over 200,000 for 12 consecutive months since 1977.)

What’s more, February was the 53rd consecutive month of positive job growth — the best stretch since 1939 — and the 58th consecutive month in which we’ve seen private-sector job growth, which is the longest on record.

Here’s another chart, this one showing monthly job losses/gains in just the private sector since the start of the Great Recession.

FebruaryPrivate

How can you tell when the economy is returning to normal? When the
The Predator Class that makes its money gambling on the casino capitalism of Wall Street takes a strong jobs report as bad news, US stocks open lower after strong jobs report, because all that matters to them is that the Federal Reserve might raise interest rates later this year. Riiight.

After six years of low interest rates many yields are now crossing the zero percent boundary. Negative Interest Rates, the ZLB, and True Capitalists:

Interest rates in Europe and Australia have turned negative on some government and corporate bonds. The decline of these interest rates into negative territory has caused much consternation among two groups of observers.

The first group astonished by this development are those who believed interest rates were pegged by the ‘zero lower bound’ (ZLB). Interest rates were not supposed to go below zero percent because one could always hold physical cash and earn zero percent rather than holding bank accounts that earned a negative interest rate. Consequently, a breaching of the ZLB has been mind-blowing for some folks. Here, for example, is Matt Yglesias:

Something really weird is happening in Europe. Interest rates on a range of debt… have gone negative.In my experience, ordinary people are not especially excited about this. But among finance and economic types, I promise you that it’s a huge deal — the economics equivalent of stumbling into a huge scientific discovery entirely by accident.

Paul Krugman similarly observes that crossing the ZLB is something he never expected. While many are surprised, the key idea behind the ZLB still holds. At some point it will become worthwhile to hold cash rather than bank deposits earning a negative return. It is just not at zero percent because of storage costs as recently noted by Evan Soltas and David Keohane. So if interest rates continue to fall they will eventually hit the effective lower bound and currency demand will soar.

“This is problematic for some, like Bill Gross, because it means financial markets are being distorted. For others, like Robert Higgs, the low-interest rate policy is troubling because it is causing the immiseration of people living on interest income.”

Despite the solid jobs recovery, there has not yet been a commensurate wage recovery. Neil Irwin explains at the New York Times’  The Upshot, Job Growth Was Fantastic Last Month. So Why Aren’t Wages Rising More?:

This is pretty terrific news by any standard.

But what is a little more curious is that while the evidence of a truly robust jobs recovery is obvious in this and other recent readings on the labor market, the evidence of the two other trends that economy-watchers are hoping to see is somewhere between murky and nonexistent.

The absence of meaningful gains in American workers’ pay has been one of the lingering problems in the economy. With high rates of job growth and an unemployment rate that is down near normal, healthy levels, you would expect workers to have more leverage to demand raises. We’ve seen anecdotal evidence that is happening, including the major employers Walmart and Aetna voluntarily increasing their wages for lower-level workers.

But the latest jobs numbers offer no real evidence this is an economywide trend. Average hourly earnings rose only 0.1 percent in the month, below forecasts. Over the last year, that number has risen only 1.98 percent, actually down a bit from a few months ago. If there is good news, it is that the sharp 0.5 percent gain reported in January was not revised downward, but it’s not a great solace.

A steep drop in oil prices and a rise in the value of the dollar mean that inflation is very low right now, so Americans are seeing inflation-adjusted wage gains despite the paltry wage increases. But in what has been an important open question — whether wages are set to rise in a material way in 2015 — the latest numbers point toward the negative.

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This all creates an interesting puzzle for the Federal Reserve as it tries to gauge when to raise interest rates.

On one hand, the results on job creation and the unemployment rate were about as good as one might hope for. The unemployment rate is now down to the upper boundary of what Fed officials believe that rate should be in the longer run (their economic projections peg that number as 5.2 to 5.5 percent).

On the other hand, the lack of progress on wages and lack of progress in pulling people into the labor force give plenty of ammunition to those officials who believe that there remains plenty of slack in the labor market and that it wouldn’t be the worst thing in the world for the Fed to let the economy run a little hot for a while to try to change those trends.

It seems sensible that financial markets acted as if the news made it slightly more likely that the Federal Reserve would raise interest rates sooner rather than later, with, for example, long-term interest rates and the dollar both rising on the news. But the report itself makes the debate over what the best policy would be more cloudy rather than less.