lunes, 9 de marzo de 2015

lunes, marzo 09, 2015
Heard on the Street

Jobs Numbers Make Work for the Fed

Disparity between strong jobs data and other indicators means investors could be wrong-footed on the timing of rate increases

By Justin Lahart

March 6, 2015 3:49 p.m. ET


 
 
Pity the policy makers trying to make sense of the pace of hiring in the U.S. And hope they get it right.

When it comes to forecasting employment, economists haven’t exactly covered themselves with glory. The Labor Department on Friday reported that the economy added 295,000 jobs in February.

That was higher than not just the median forecast of 240,000 jobs from economists surveyed by The Wall Street Journal—it was higher than any one of the 33 estimates. It also marked the fourth jobs report in a row where the median estimate was too low.

Even factoring in the margin of error around the Labor Department’s job figures, that is a pretty remarkable feat. Meanwhile, the unemployment rate fell to 5.5%, rather than the 5.6% economists were looking for. Average hourly earnings rose by just 0.1% from January, putting it 2% above its year-earlier level; economists were looking for a gain of 0.2%.

The problem for economists is that what is happening with jobs is really hard to square with other parts of their forecasts, says Robert Barbera, co-director for the Center for Financial Economics at Johns Hopkins University.

Indeed, the recent pace of job gains is consistent with stronger economic growth than economists expect this year, as well as an unemployment rate that will fall well below what they are looking for.

Indeed, if the pace of payroll gains of the past three months were to continue, and the labor-force participation rate—the share of the working-age population working or looking for work—stayed at 62.8%, the unemployment rate would fall to around 4.3% by the end of the year. Even allowing for more people entering the labor force, and job gains slowing a bit, the risk is that economists’ average forecast for the year-end unemployment rate of 5.2% is too high.

Federal Reserve policy makers are in the same boat. Their projections for the unemployment rate at the end of the year are centered on 5.2% to 5.3%. And their projections for the longer run unemployment rate—that which the economy can sustain without inflation heating up too much—center on 5.2% to 5.5%. The current unemployment rate is at the top of that range.

The strength of the jobs report, and the prospect of the unemployment rate dropping below policy makers’ longer run range, had investors on Friday upping the chances that the Fed will begin raising rates at its June meeting, with an additional increase coming before the year ends.

But the Fed’s willingness to make such moves will depend on inflation showing some sign of heating up. Given the continued strength of the dollar and the risk that, with an overhang of oil inventories building up, pump prices take another leg down, that is no sure thing.

More important, it is looking as if Fed policy makers’ estimates of how low an unemployment rate the economy can safely handle without inflation jumping may simply be too high. They shouldn’t be afraid of being proved wrong on that front.

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