Job Gains Riding 'Tailwind' of Warm Weather—for Now
Slow but stable jobs growth likely will be the prevailing trend through the year, though economists expect that the boost from unseasonably warm weather actually could temper the numbers in the months ahead.
The U.S. economy scored its third straight month in February of more than 200,000 jobs created— with 227,000 — and the unemployment rate is holding at a still-elevated 8.3 percent.
Credit for the stabilization goes in significant part to the warmest winter in more than a decade.
"The recent improvement in economic data has been a function of three factors: weather, a delay in the foreclosure process, and the lagged impact of lower gas prices," said Neil Dutta, economist at Bank of America Merrill Lynch. "Today's employment report falls into this tailwind period."
Warm weather has helped boost the jobs numbers because of seasonal adjustments to the data. Economists build in a number of jobs normally lost during this period, but many of those positions in fact remain filled.
According to Dutta's calculations, for instance, a typical February sees 485,000 people "not at work due to bad weather," so the government adjusts accordingly to take into account seasonal layoffs. However, this time around that number has been closer to 178,000.
"Weather-related effects will not be a tailwind as the winter thaws to spring," he said. "As a result, we remain cautious on the near-term data flow and continue to expect a more mixed economic data backdrop in coming months."
Likewise, Citigroup economist Steven C. Wieting, while calling Friday's numbers "fairly encouraging," warned that corrections for the recent seasonal adjustments could see a monthly report ahead closer to 100,000 jobs created — less than half the recent average of 251,000.
"Despite a fundamentally improving trend, monthly employment gains can be volatile and subject to seasonal distortions," Wieting said in a note. "One is likely to manifest in the spring/early summer period this year again."
Of course, that doesn't mean the jobs picture is going to fall off a cliff or return to recessionary levels.
Rather, it just means there are cautionary signs ahead for the investors and politicians alike whose fortunes rise and fall with the strength of the monthly economic reports in general — and the jobs indicators in particular.
"As the administration always stresses, it is important not to read too much into any one monthly report," Alan Kreuger, chairman of President Obama's Council of Economic Advisors, said in a statement. "Nevertheless, the trend in job market indicators over recent months is an encouraging sign."
The February job growth was enough to give economists hopes that the jobs picture is on a long-term trek higher, but wasn't enough to lower the headline unemployment rate. The somewhat conflicting signs, then, continue to pose a dilemma for Federal Reserve Chairman Ben Bernanke, who recently told Congress that he remains concerned about jobs despite the improving data.
Investors, meanwhile, are waiting on tenterhooks to see whether the central bank institutes a third round of bond-buying, a liquidity program done under the auspices of what is known as quantitative easing .
QE3 has helped boost risk assets before, but its effect of circulating more money in the economy and thus depreciating the U.S. dollar is increasingly being seen as a threat to push inflation higher.
"While the overall job creation numbers are impressive, the breadth of gains also speaks to the health (of) the labor market," Deutsche Bank economist Joseph LaVorgna said in a note. "The labor market data look solid; and as a result we believe the likelihood of additional monetary policy accommodation is further reduced."
Indeed, consensus is building that while the jobs numbers ahead are unlikely to be spectacular and could pull back some, they should be solid enough to keep the recovery theme going.
"This is a new trend that is developing within the labor market — things are improving," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "The numbers are certainly far away from what we need to get unemployment down or to suggest that growth is going to be 3.5 or 4 percent. I don't expect that to happen anytime soon. But I do expect the trend to continue."