For all the excitement on the headline jobs figure - February payrolls grew by 235,000, or 35,000 more than expected - private sector gains actually missed expectations when we include the revisions to the two prior months. Maybe that's why bond yields are lower after the report. Expectations likely got ahead of themselves after Wednesday's ADP report.
Smoothing this out, private sector job adds are still good, averaging 199,000 over the past three months compared with 189,000 over the past six months and 180,000 over the past 12. But, in 2015 they averaged 213,000 and 239,000 in 2014.
What does this mean for actual economic growth? Well first quarter GDP is expected to be soft if the current estimates are any indication. The Atlanta Fed is predicting just 1.3 percent growth. What this means is productivity growth in the first quarter was weak because it's taking more and more jobs to generate a modest pace of economic activity.
The hope is that we see a nice rebound in the second quarter due to pent up demand post election in both hiring and goods manufacturing with inventories most likely to build again off a lowered state.
The key to this and any hoped for sustainability will depend on what tax and regulatory reform actually looks like. I know I'm stating the obvious on that but at least on the tax side, markets have priced in perfection and a clean cut in taxes. Unfortunately though we are going to get a slew of tax increases to help pay for the tax cuts. No free lunch here.
The growing headwind will be slowing auto sales, a mixed picture on housing and the rising cost of capital for those that are LIBOR based borrowers. The key to a sustainable pick in growth will be whether capital investment picks up at a quicker pace and the results of tax reform will be an important determinant of that.
A rate hike next week is baked in the cake and was so even before the jobs data was released this week. The question will then build over when the Fed will hike after next week. I'd say June.
Either way, the Fed is so far behind the curve that the FOMC couldn't even make my son's little league team. In the eighth year of an economic expansion, with massive asset price inflation and now rising consumer price inflation, REAL rates should not still be negative.
As much as there is deserved excitement in the stock market over a fire lit under the economy due to hoped regulatory relief and tax reform, I still believe markets will be dominated this year by the actions of central banks. After all, it was NIRP, ZIRP and QE that drove equity valuations to levels last seen in 1929 and 2000.
This year will mark the first year in this grand experiment of modern day monetary activism that all four major central banks will in some fashion take back some of their accommodation. Therefore I believe, the direction of interest rates and behavior of central banks will still be driving the equity bus, unfortunately.
Commentary by Peter Boockvar, the chief market analyst for the Lindsey Group and co-chief investment officer at Bookmark Advisors. Follow him on Twitter @pboockvar.
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