The January jobs report came in above expectations, with nonfarm payrolls growing by 257k and, more importantly, there were large upward revisions to the previous two months. Simply put rumors of the demise of the US economy continue to be premature.
The pace of job gains accelerated further on average:
Oil and gas extraction jobs declined by 1.9k, but we all know more are coming. But outside of that sector, the economy added 255k jobs. The oil and gas extraction sector itself is only 200k jobs. In short, the fears that this sector is going to topple the US economy are just simply not going to come to pass.
In the context of data Federal Reserve Chair Janet Yellen has previously signaled as important:
Ongoing general improvement with measures of underemployment still elevated. There was some excitement about the 12 cent gain in average hourly earnings. I myself am less impressed as to me this largely represents a correction from December's anomalous drop. Wage growth remains fairly anemic year-over-year:
I would also like to see what happens after the impact of minimum wage hikes dissipates. The Fed, however, my take more comfort in the uptick than me. It goes without saying that a June rate hike remains on the table, although I think it is difficult to justify without faster wage growth. Still four jobs reports till then, so plenty of time to pull that number upward.
Jon Hilsenrath reiterates the view that if the Fed wants to keep the June option open they need to pull the word "patient" in March:
Second, Fed officials will decide at their March meeting whether to change or drop the language in their policy statement pledging to “be patient” in deciding when to raise their benchmark short-term interest rate from zero. That phrase means they won’t move for at least two more meetings.
After the March gathering, the Fed has meetings scheduled for April and June. If the policy makers keep the “patient” language in the statement, that would indicate they don’t think they’ll raise rates at those meetings. If they scrap the phrase, that would give them the option to move as early as June if the economic data hold up.
I doubt this is as black and white as Hilsenrath argues. I don't think Yellen intended to imply that "patient" always means two meetings. Perhaps I just have too many memories about "considerable time" first meaning six months and then not. Plus, the Fed is aware of its past history, and in 2004 "patient" turned to "moderate" just one meeting before the hike. But it was technically the second meeting after "patient" was dropped, so is that two meetings? Also, as we saw with the "considerable" to "patient" transition, the Fed has its own unique way of wordsmithing that can deliver something for everyone. And finally, Yellen has the press conference to redefine her interpretation of "patient." But maybe I am wrong. In any event, I am not taking a fixed stand on what "patient" means until the press conference.
Bottom Line: The US economy has very real momentum on its side at the moment. It is more resilient to shocks than commonly assumed. This isn't 2011. June is still on the table.
