US East Coast Shovels Out, but Jobs Report is Hot

Despite poor weather that appears to have effected other February data, the US jobs report is stronger than expected.  The economy grew 295k net new jobs, nearly all accounted for by the private sector (+288k). 

Some of the other details were not as impressive, but should be sufficient to boost confidence that the Federal Reserve drops the "patience" from its forward guidance later this month, keeping a June rate hike on the table.  

The unemployment rate ticked down to 5.5% on the back of a 0.1% decline in the participation rate.  Hourly earnings rose 0.1%.  The consensus had called for a 0.2% increase.  That pushes the year--over-year rate back to 2.0% from 2.2%.  Manufacturing jobs rose 8k, which is not only lower than expected, but the smallest monthly increase since July 2013.    Revisions reduced the job growth of the past two months by 18k.  

In addition to the headline strength, the other impressive part of the report, especially for the Federal Reserve is the U-6 measure of underemployment.  It fell  to 11% from 11.3%.  It stood at 12.6% last February.  

In the Q1 14, the US economy contracted.  And then over the next six months grew at its fastest pace in a decade.  Economic activity in the US moderated in Q4 and appears to have steadied in Q1 15 a little more than a 2% pace.    While the European and Japanese economic recoveries still look fragile, there is very little about the US expansion that appears fragile.  This does not mean sustained above trend growth, and it is true that trend growth has slowed from early decades (due to changing demographics and weaker productivity growth).  

There does appear to be a bit of a tug-of-war underway.  The strength of the US economy and prospects of Fed tightening later this year should exert upward pressure on global rates.  Meanwhile, the bond purchases by the ECB and BOJ, coupled with the ongoing diversification of Japanese pension funds may exert downward pressure.    Both adjustments are taking place, to the dollar's benefit.