Strong Jobs Report, Lower Stocks
Wall Street indices dipped lower at Friday’s open despite a strong jobs report from the Labor Department.
Friday, March 6, 2015 - 00:00
February’s numbers showed employers added more jobs than analysts had expected while the unemployment rate fell from 5.7% to 5.5% - the lowest level in nearly seven years.
Businesses added 295,000 payrolls in February, well beyond the expected 235,000 increase. It was the 12th consecutive month in which payrolls have gained by at least 200,000 – the longest streak since a 19-month stretch up until March 1995. However, hourly wages rose less than anticipated. Once again, wage growth is the missing part of the equation for the Federal Reserve policy makers who weigh the decision of when to increase interest rates.
The three main US indices are on pace to end the week lower. Friday’s open saw decreases across the board: the S&P 500 lost 0.4%, the Dow fell 0.6% and the Nasdaq dropped 0.2%.
Fed still focused on wage growth
While jobs creation and unemployment are both strong, the Federal Reserve needs moreevidence of wage growth before it is comfortable saying the US economy is close to full strength, according to The Wall Street Journal. Fed chair Janet Yellen said last week that employment is improving, but “wage growth remains sluggish, suggesting that some cyclical weakness persists.”
Average hourly earnings in the private sector increased by $0.03 in February to $24.78. Those earnings were up 2% over a year earlier, but lower than January’s yearly gain of 2.2%. That figure lead the Federal Reserve to cite additional, lingering slack in the labor market.
Still, the jobs report is “strong everywhere except wages, but that’s just a matter of time,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told The Wall Street Journal. There is now “more evidence that the labor market is recovering rapidly.”
In all likelihood, the Fed will see the economy as strong enough to warrant an interest rate increase in the coming months. Though some slack remains – as evidenced by persistently sluggish wage growth – the report painted the picture of an improving labor market.
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While the Federal Reserve may raise interest rates in mid-2015, there is no exact date set. In the interim, many markets will react to news reports on the effects of a rate hike, especially in concert with Europe's QE program.
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