Unlock Editor's Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
The U.S. economy added 275,000 jobs last month, beating forecasts, but sharp downgrades to earlier numbers complicated the outlook for the U.S. economy.
Nonfarm payrolls for February beat economists' forecasts of 200,000 new jobs and showed the U.S. services sector remains strong.
However, the figure of 275,000 jobs in February was dwarfed by the revised totals for January and December, when 167,000 fewer jobs were created than previously estimated.
Immediately after the report, traders increased their bets on faster and earlier rate cuts, but later reversed course.
Futures prices show that traders expect the Fed to cut interest rates for the first time as early as June, followed by two or three more rate cuts later in the year.
In their December dot plot, Fed officials indicated they expected to cut interest rates three times this year. They will release their latest forecasts at their upcoming meeting in March.
“Downward revisions to previous months’ earnings make recent growth appear less strong than previously thought,” Capital Economics, a consulting firm, said in a note.
The yield on two-year government bonds, which moves with interest rate expectations, remained declining overnight and was down 0.03 percentage points to 4.48 percent over the course of the day.
After an early uptrend, the S&P 500 slipped into negative territory during morning trading and remained 0.2 percent lower in the afternoon.
In Friday's release, the Bureau of Labor Statistics downgraded the total number of new jobs for January to 229,000 from a blockbuster initial figure of 353,000. The December figure was reduced from 333,000 to 290,000.
According to the BLS, the unemployment rate rose to 3.9 percent in February from 3.7 percent the previous month. Wage growth also slowed, with average hourly wages rising just 0.1 percent in February.
“The robust February wage numbers are more than offset by downward revisions for December and January, the rise in the unemployment rate and weak wage numbers,” said Stephen Stanley, U.S. economist at Santander Bank.
“Still, I think the overall picture is that the job market is still healthy,” he added.
You see a snapshot of an interactive graphic. This is most likely because you are offline or JavaScript is disabled in your browser.
February data suggested that job growth remained concentrated in the services sector, with the number of workers increasing significantly in healthcare, hospitality and the public sector.
“The strength of the economy continues to lie in the services sector and we know that [services inflation] is something the Fed is keeping an eye on,” said Diane Swonk, chief economist at KPMG US.
February consumer price index inflation figures will be released on Tuesday.
Fed Chairman Jay Powell said Thursday that the U.S. central bank is “not far away” from having the confidence to start cutting borrowing costs as it waits for more concrete evidence that inflation is on the way to achieve the bank's 2 percent target.
But other rate setters believe there are signs the U.S. economy is too strong to justify lower borrowing costs.
Wei Li, chief global investment strategist at BlackRock, said the U.S. labor market remains tight and argued that the Fed will cut interest rates “but not as quickly or as early as the market expected.”
She added: “Our baseline expectation is for cuts to begin in June, with three cuts this year.”
Comments are closed.