Economic data takes the spotlight Friday, led by the February employment report. For the past two weeks, traders have become more worried about economic slowing. However, inflation pressures are still elevated and this leaves the Fed in a tough spot. Even former Fed Chairman Alan Greenspan made comments of late about the economy slipping into a recession. Today's data was mostly bullish, though a larger than expected rise in average hourly earnings is a concern.
Nonfarm payrolls increased by 97,000 in February, roughly in line with expectations. However, December and January figures were revised higher by a total of 55,000. This particular metrics came out better than expected, which eased some concerns about a recession. However, average hourly earnings continue to show gains, keeping the Fed on inflation watch. In the past year, nonfarm payroll employment is up 1.5 percent, down a tenth from January's figure.
Earnings were expected to rise 0.3 percent, but were a tenth higher at 0.4 percent. This put year on year gains at 4.1 percent, which is well above the Fed's comfort zone. Overall, concerns about inflation and better than expected jobs growth pushed the odds of a Fed rate cut sharply lower. In fact, Fed fund futures are now pricing in just a 32 percent chance for a cut the first half of the year. These odds were cut in half from yesterday's 65 percent chance.
The unemployment rate, derived from the household survey, fell a tenth to 4.5 percent. Household employment fell by 38,000 in February, but the labor force fell by 190,000. The employment to population ratio dropped to 63.2 percent from 63.3 percent. Overall, this data shows that there still is some tightness in the labor markets, which could lead to inflation pressures. However, this data doesn't point to a recession and it is expected that a slow down in the economy will gradually push wages down as well.
In other news, the international trade deficit for January narrowed to $59.1 billion from $61.5 billion in December. This was better than estimates at a deficit of $59.8 billion. Exports picked up 1.1 percent during the month with imports falling by 0.5 percent. This news is even more impressive given the 4.7 percent rise in petroleum. Of course, last week stocks took a hit on concerns that the global economy was going to slow. However, the unwinding of the carry trade has balanced out and though the U.S. economy is likely to decelerate, most economists believe a soft landing is still in the works.
The wholesale inventories report was released this morning as well, but hasn't garnered much attention. Inventories rose 0.7 percent in January as wholesale sales fell 0.9 percent. This put the inventory-to-sales ratio at 1.19, up 2 tenths. Though this data points to a building of inventories as growth slows, January's data only offsets a 1.6 percent increase in sales in December. Nonetheless, if inventory levels continue to rise as demand eases; it could bring about worries of inventory overhang.
Oil prices fell to support near $60 Friday, giving up $1.59 a barrel, or 2.6 percent, to $60.05. Some declines have been expected given the outlook for slowing global growth. At the same time, winter is ending and demand for petroleum is likely to ease further. It will be interesting to hear what OPEC has to say about supply and demand, as well as quotas when they meet next week in Vienna. Prices for the week were also off 2.6 percent and are at their lowest price since Feb. 20.
Next week's attention will be focused in on inflation data with both the producer price index and consumer price index on tap. Data on retail sales and industrial production could also have market moving impact.
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