INDICATOR: February Conference Board Employment Trends Index
KEY DATA: Employment Trends: up 0.3%; Year-over-Year: up 4.4%
IN A NUTSHELL: "The February employment report was no fluke as other indicators are pointing to better job gains."
WHAT IT MEANS: The February jobs report seemed to take everyone by surprise. It was different from my forecast, but I had growth at 200,000 for the month, which put me at the top of the estimates. Indeed, I was so far above what others had been estimating that one forecast panel called and asked if I wanted to revise my number. I didn't. My thinking was driven by the unemployment claims data, which are still pointing to employment increases in the 200,000 or above range. Today's number shows there are also other reports that seem to support a firmer than believed labor market. The Conference Board's Employment Trends Index rose solidly in February and the gain over the year was not much below what we saw in 2004 and 2005 and even exceeded the increase in 2006. Those were good years for the economy and the increase points to the likelihood that once we clear the weather issues, we should start seeing really solid payroll numbers in the months ahead. I suspect that the Job Openings, Layoffs, Turnover and Separations (JOLTS) data will also support the view of improving labor market conditions.
MARKETS AND FED POLICY IMPLICATIONS: Clearwater and the Phillies spring training games were fun last week, even though they played badly, but the time away gave me a chance to step back from the data. We get too hung up on the monthly machinations of the numbers and don't spend enough time considering larger trends and circumstances. When you get 175,000 new positions added in the midst of the harsh weather we faced, it really does indicate that businesses are looking to hire. This year we are not facing the kind of fiscal chaos that we did the last few years so there is some confidence that Washington will not crater the economy again and businesses can start thinking longer-term. Thus, I expect that as we go through the spring, payroll increases should accelerate and we could be seeing gains in the 250,000 a month range fairly consistently during the second half of the year. Yes, it is an election year, but that Congress will probably do nothing, which is a lot better than doing what they had been doing. Thus, I am not concerned by the modest uptick in the unemployment rate to 6.7%, which should come down in fits and starts for the rest of the year. Don't be surprised if we get to 6% by year's end. The tighter labor market and the likely acceleration in wage gains (we started seeing that in February as the average hourly wage increased nine cents) should mean we are setting up for a strong second half of the year.