Market Overview

Will Friday's Jobs Beat Set Up Disappointment For Next Month?


Investors were energized this morning on a jobs report that blew consensus estimates out of the water. Markets had braced for potentially bad news on expectation of employment corrections on the heels of the holiday season - and the temporary jobs it was thought to have brought.

Will the stronger data push markets to err on the other side and possibly set themselves up for disappointment in the first Friday of March?

Markets reacted strongly to the about-face on the jobs situation this morning, on headline numbers surely worthy of the commotion. The Employment Situation Summary revealed that the US unemployment rate fell by two percentage points to a lowest-yet 8.3 percent since February of 2009, as 243,000 non-farm jobs were added for the month of January. In hindsight, revised-down Wall Street expectations of 140,000 had been woefully low at 140,000. Economists surveyed by the MarketWatch had forecast an even lower 121,000 jobs, as expectations were for an unemployment rate that would stay put at 8,5 percent.

Such low expectations were not helped when consumer confidence hit an unexpected bump on Tuesday. Even Fed Chairman Ben Bernanke set a low tone in his testimony to Congress yesterday, with a largely reserved take on the U.S. economic outlook, to the point that he did not rule out further quantitative easing.

The tide seems to have turned in the hours following the jobs report. MarketWatch notes that the jobs beat raised the possibility that the Federal Reserve could raise interest rates before the end of 2014. David Greenlaw of Morgan Stanley said the bar to additional quantitative easing was still very low and that “the Fed would need to see more reports like the one we got this morning to prevent them from pulling the trigger.”

Avery Shenfeld, an economist with CIBC, noted that the report raised expectations across the board: “This is finally a decent report for employment,” he told MarketWatch, “one that suggests [that] first-quarter growth could be a bit stronger than our 2% estimate if this trend extends into the balance of the quarter.”

With higher expectations comes the risk that they will not be met. But in case economists start getting comfortable with outsize consensus numbers going forward, Toronto-based Capital Economics says the trend of job growth may not remain intact. "We've been here before with 200,000 plus monthly gains in payrolls in spring 2010 and spring 2011 that ultimately came to nothing," CNBC quotes a Capital Economics' note to clients. "With housing still in the dumps, fiscal policy being tightened and the euro-zone crisis likely to flare up again at any moment, we still think the US will endure another year of weak growth in output and employment."

For today, investors are not restraining themselves. The Down Jones Industrial Average is currently up 144 points at 12,849, up 1.13 percent. The S&P 500 is up 17.3 points or 1.31 percent since open.

Posted-In: News Broad U.S. Equity ETFs Politics Psychology Crowdsourcing Events Econ #s Economics Best of Benzinga


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