Nonfarm payrolls rose by a seasonally adjusted 175,000 in February, the Labor Department said Friday, marking a partial rebound from a stretch of particularly sluggish job growth. Revisions also showed the economy added slightly more jobs in recent months than previously estimated. Payroll employment rose by 129,000 jobs in January, revised up from 113,000, and 84,000 in December, up from the earlier estimate of 75,000.

The nation’s unemployment rate ticked up to 6.7% in February from 6.6% in January. The U.S. labor force grew as people joined the workforce, but so did the number of unemployed.  Economists surveyed by Dow Jones Newswires had projected payrolls would rise 152,000 in February and the unemployment rate would fall to 6.5%.

While the report eased fears about a deeper pullback in hiring, job growth remains relatively sluggish and broader measures of unemployment remain historically high. Payroll growth over the last three months has averaged 129,000 jobs a month, far less than the monthly average of 189,000 over the 12 months ended January.

Stronger job growth before the winter slump spurred the Fed in December to begin scaling back its bond-buying program, which aims to stimulate the economy by lowering borrowing costs. The central bank is now purchasing $65 billion per month of Treasury Bonds and mortgage-backed securities.  Policy makers have signaled they plan to pare it in $10 billion increments this year as long as the economy continues to improve. The forecasts of weaker job growth due to the cold weather had prompted some speculation among investors that the Fed might alter course.  However, today’s jobs report was “good enough” to keep the Fed tapering in our opinion but we are a long way from creating the number of jobs needed to produce any dramatic change in Fed policy.

An important concern for the Fed is determining how much any potential decline in the unemployment rate is related to the possible exit from the workforce of 1.3 million people who had their emergency unemployment benefits terminated at the end of last year.

The household data show that about 3.6 million men aged 20 years and older have exited the workforce since the eve of the recession in November 2007. While some of this can be explained by demographic changes linked to the retirement of Baby Boomers, it also appears to be structural and related to a deterioration of job skills in an economy where the average duration of unemployment is 35.5 weeks or about eight months.  A continued decline in the jobless rate because of demographic shifts and changes in the behavior of the long-term unemployed is unlikely to be warmly welcomed by central bankers who need to bolster their credibility as they transition from asset purchases to forward guidance as a primary policy tool.

Monetary policy remains a second-order option to address long-term structural employment. Given the Fed’s communication to markets that it will keep rates “lower for longer,” further “improvement” in the unemployment rate may force policy makers to ponder a reduction in its threshold to 6 percent from the current 6.5 percent to better align its forward communications policy with labor market realities.


The Russian intrusion into the Crimean Ukraine is troubling indeed.  President Vladimir Putin directly challenged President Obama by ordering military action in Ukraine.  The Russian Parliament, not surprisingly, voted to give Putin broad military powers to invade Ukraine, the pretext being to protect Russian citizens and Russian property.  Then on Thursday Crimea’s parliament in Russia asked President Putin to allow the region to join Russia, and would seek an endorsement from the Crimean people in a referendum vote on 16 March.

Prime Minister Yatsenyuk said on Friday Ukraine was open to talks with Russia as long as it withdrew its troops and abided by international agreements.  In a warning to the “separatist and other traitors of the Ukrainian state”, he said: “Any decision of yours is deliberately unlawful and unconstitutional and no-one in the civilized world will recognize the decision of the so-called referendum of the so-called Crimean authorities”.

Kiev does not recognize Crimea’s pro-Moscow leadership, which was sworn in at an emergency session as pro-Russian forces began to take over strategic sites last week.  Crimea’s leadership in Russia for its part has branded as “illegitimate” the interim government in Kiev, which was sworn in at the end of February after the ousting of President Viktor Yanukovych.  

Russia’s foreign ministry accused the European Union of taking an “extremely unconstructive position” after leaders meeting in Brussels agreed to freeze talks on easing travel restrictions to Russians.

Washington also announced visa restrictions against a number of unnamed Ukrainian and Russian officials and individuals.  During an hour-long phone conservation, US President Barack Obama told President Putin that Russia’s actions were a violation of Ukrainian sovereignty, the White House said in a statement.  He said there was a solution available that suited all parties, involving talks between Kiev and Moscow, international monitors in Ukraine and Russian forces returning to their bases.

President Putin said the new authorities in Kiev had imposed “absolutely illegitimate decisions” on the pro-Russian parts of eastern Ukraine, and Moscow “cannot ignore calls for help”.  But he also said US-Russian “relations should not be sacrificed due to disagreements over individual, albeit extremely significant, international problems”, the Kremlin said.

This is likely to remain on ongoing issue for several months for global leaders to deal with because it raises critical International Law issues that simply cannot be ignored by the U.S. and the European Union.  


Over the past week, the final DJIA component (Home Depot) reported earnings for the fourth quarter. During the fourth quarter earnings season, some companies in the DJIA specifically commented on the difficult conditions they faced in Europe during the quarter. Other companies, however, stated that conditions had improved in Europe relative to recent quarters. In terms of revenue growth from Europe, what did companies in the DJIA report for numbers for the fourth quarter? Overall, eleven of the 30 companies in the DJIA provided revenue growth numbers for Europe for the fourth quarter. Of these eleven companies, nine reported a year-over-year increase in revenues. This marked a slight improvement relative to the previous quarter which was eight. In fact, this was the highest number of DJIA companies to report sales growth in Europe since Q4 2011 (9).

Of the 484 companies in the S&P 500 that have reported earnings to date, 71% have reported earnings above estimates. This percentage is slightly below the average of 73% recorded over the past four years. In terms of revenue, 63% of companies have reported sales above estimates. This percentage is well above the average of 59% recorded over the past four years. In aggregate, companies are reporting earnings that are 3.3% above the mean EPS estimate. This percentage is below the average of 5.8% over the past four years.

The blended earnings growth rate for the S&P 500 for Q4 2013 is 8.5% this week, slightly above last week’s growth rate of 8.4%. Upside earnings surprises reported by companies in the Consumer Discretionary and Utilities sectors were mainly responsible for the increase in the overall earnings growth rate this week. On December 31, the Q4 earnings growth rate for the index was 6.3%. Eight of the ten sectors have witnessed an increase in earnings growth since that date, led by the Materials sector.


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