While reports on the labor sector dominated the economic calendar, Fed Chair Jerome Powell's remarks about inflation also made headlines.
February Job Creations Stronger Than Expected
The Bureau of Labor Statistics (BLS) reported that there were 379,000 jobs created in February, which was stronger than the 140,000 expected. In addition, there were positive combined revisions to December's and January's data, amounting to an additional 38,000 new jobs in those months.
Delving deeper into the numbers, there are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from and it's based predominately on modeling.
The Household Survey, where the Unemployment Rate comes from, is done by actual phone calls to 60,000 homes. The Household Survey also has a job loss or creation component, and it showed that there were 208,000 job creations, while the labor force increased by 50,000. The number of unemployed people decreased by 158,000. As a result, the unemployment rate fell slightly, from 6.3% to 6.2%.
It is important to note that there are 4.2 million people who have been unable to look for work due to pandemic reasons, and who are still unemployed, yet they have not been counted. When we add them into the calculation, the unemployment rate moves higher to 9.2%.
In addition, there has been a lingering misclassification error where people were classified as absent from work for other reasons and not marked as unemployed on temporary layoff when they should have been. Without this error, the headline unemployment rate would have been 0.5% higher or 6.7%, while the real unemployment rate counting those who are unable to look for work due to pandemic reasons would be closer to 10%.
The all in U6 Unemployment Rate, which includes total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, remained stable at 11.1%.
Average hourly earnings are up 5.3% year over year, while average weekly earnings rose 6%, which is down from 7.5%. Weekly earnings measure what people actually take home, so the increase represents some nice gains despite the decline from the previous report.
Private Payrolls Weaker Than Expected
The ADP Employment Report, which measures private sector payrolls, showed that there were 117,000 jobs created in February, which was weaker than the 165,000 job gains that were expected. However, January’s report was revised higher by 21,000 jobs, from 174,000 to 195,000 jobs created in that month.
The service sector accounted for all of the gains, led by trade, transportation and utilities, which added 48,000 jobs. The hospitality sector added just 26,000 jobs and is down 3.8 million jobs from when the pandemic began.
We did see job gains across all sizes of businesses. Small businesses (1-49 employees) gained 32,000 jobs, mid-sized businesses (50-499 employees) gained 57,000 jobs, and large businesses (500 or more employees) gained 28,000 jobs.
Jobless Claims Remain Elevated
We're still not seeing much of an improvement in Jobless Claims at this stage of the recovery, unfortunately. Initial Jobless Claims, which measure people filing for unemployment benefits for the first time, showed that 745,000 claims were filed in the latest week, which was up slightly compared to the previous week.
Continuing Claims, which represent people who continue to receive benefits, decreased by 124,000 to 4.3 million. Pandemic Unemployment Assistance Claims, which gives individuals benefits who would not usually qualify, decreased by 191,000. Pandemic Emergency Claims, which extends claims by 13 weeks after regular benefits expire, also decreased by 600,000. Unfortunately, however, these decreases most likely represent people whose benefits have expired and not any real improvement in the employment situation.
The total number of continued benefits in all programs for the week ending February 13 was 18 million, a decrease of 1 million from the previous week. By comparison, there were just 2.1 million weekly claims filed for benefits in all programs in the comparable week in 2020.
Appreciation Shows Housing Remains Hot
CoreLogic released their Home Price Index report for January, which showed that home prices increased 1.0% from December to January and 10.0% on a year over year basis. This is a significant gain from the 9.2% year over year gain reported for December.
Within the report, the hottest markets were Phoenix (+14.8%), San Diego (+11.0%) and Washington (+9.1%).
CoreLogic forecasts that home prices will rise 0.5% in February. However, they have been forecasting minimal gains each month and yet the gains have been higher and closer to 1%. CoreLogic also predicts home prices will appreciate 3.3% in the year going forward. While this is better than the 2.9% forecast from their previous report, note that it is still lower than most forecasts out there.
Fed Believes Inflation Set to Rise
Fed Chair Jerome Powell spoke at The Wall Street Journal's Jobs Summit and noted that the Fed will be pretty tolerant of inflation. Powell also noted that inflation is set to increase, but this will likely be temporary.
Why are these comments significant?
Inflation is the arch enemy of fixed investments like Mortgage Bonds because it reduces their value. Home loan rates are inversely tied to Mortgage Bonds. Rising inflation (or even the fear or hint of rising inflation), can cause Bonds to worsen or move lower, which means home loan rates can rise.
Though many factors impact the markets, it's always important to keep an eye on inflation headlines since they have the power to move the markets.