Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

Goldman Payroll Post-Mortem: Fed Will Modify Forward Guidance, Possible June Rate Hike

Via Goldman Sachs,

Payroll employment continued to grow at a strong pace, exceeding consensus expectations. The unemployment rate fell due to lower participation. With the final employment report in hand before the upcoming FOMC meeting, we think the Committee will modify its forward guidance on March 18. Our forecast remains for the first hike in the fed funds rate to occur in September.

KEY NUMBERS:

  • Nonfarm payrolls +295k for February vs GS +220k, median forecast +235k
  • Unemployment rate 5.5% for February vs GS 5.6%, median forecast 5.6%
  • Average hourly earnings +0.1% (mom) February vs GS +0.2%, median forecast +0.2%

MAIN POINTS:

1. Payroll jobs rose 295k in February (vs. consensus +235k). There was no significant negative weather effect apparent in the data, as construction employment and leisure and hospitality employment—the most weather-sensitive sectors—posted solid gains. By industry, the largest gains occurred in leisure and hospitality (+66k), trade, transportation and utilities (+62k), and professional and business services (+51k). Mining employment fell 8k, reflecting acceleration in energy sector layoffs, but representing only a small drag in an otherwise strong report. As expected, refinery strikes temporarily subtracted about 6k from payroll job growth.

2. The household survey showed a two-tenths decline in the unemployment rate to 5.5% (5.545% on an unrounded basis). The participation rate declined one-tenth to 62.8%. Employment according to the household survey—which is significantly more erratic than the payroll survey—rose 96k in February. The "U-6" measure of underemployment—including workers marginally attached to the labor force and those working part time for economic reasons—fell three-tenths to 11.0%.

3. Average hourly earnings rose 0.1% in February (vs. consensus +0.2%), leaving the year-on-year rate at a subdued 2.0%. Production and nonsupervisory earnings were softer: flat in February and up 1.6% over the past year. Average weekly hours were unchanged at 34.6.

4. With the final employment report in hand before the upcoming FOMC meeting, we think the Committee will modify its forward guidance on March 18. In our view, the most likely scenario is that the Committee replaces the reference to being “patient” in hiking the funds rate with new language that affords the possibility—without suggesting an overwhelming likelihood—of a hike as early as June. Our forecast remains for the first hike in the fed funds rate to occur in September.

5. With payrolls, unemployment claims, consumer sentiment and a number of business surveys in hand, our preliminary read on the February Current Activity Indicator is 2.8%, down from 3.2% in January.

*  *  *

We suspect Jan Hatzius will be trotted out to explain how this headline number is in fact terrible and The Fed should delay delay delay the removal of the punchbowl...

So much for that data-dependence... Boxed-in much?