Recap 2-3-12

Main Items:

  • US Payrolls jumped to 243k in Jan vs 140k exp and 200k prev.
  • Unemployment declined to 8.3% vs 8.5% exp and prev. However, the Participation Rate declined to 63.7 vs 64% previously.
  • Avg Weekly Hours increased to 34.5 in Jan vs 34.4 exp and prev
  • ISM Non-Mfg jumped to 56.8 in Jan vs 53.2 exp and 52.6 prev
  • Canadian Employment increased just 2.3k in Jan vs 22k exp and 21.7k prev. UE increased to 7.6% vs 7.5% exp and prev.


  • UK Services PMI improved to 56 in Jan vs 53.3 exp and 54 prev
  • Italian Services PMI improved to 44.8 in Jan vs 45.5 exp and 44.5 prev
  • China Non-Mfg PMI declined to 52.9 in Jan vs 56 prev. The HSBC measure was unchanged at 52.5.


Obviously we’ve had a very bullish set of data this week. This largest impact is likely to be in the rates market, as expectations for another round of QE was baked in, and investor and bank holdings are very long. Bill Gross boosted the proportion of U.S. Treasury debt in the Total Return Fund to 30 percent of assets in December, the highest since November 2010. Note that 11/10 was also the month yields reached their lows in 2010.
With the kind of data we had today, it’s not at all clear that the Fed should be expanding its balance sheet further. For example – if we simply extrapolate the current rate of unemployment decline further, we will get the top part of the FOMC’s central tendency estimate of NAIRU of 5-6% by the early 2016. By then, Fed Funds should be around the neutral rate of ~4% according to FOMC participants. And the Fed has already committed to keeping policy rates at 0% through the end of 2014!!

As I’ve said previously, I expect that we get some version of the 2003 scenario to replay this time around. Watch carefully for shifts in Fed language.

2 thoughts on “Recap 2-3-12

    1. Perhaps, although I’d argue that the 2003 example is more pertinent due to the length of time the Fed was on hold or easing despite the strong data. From 2001-2003 the Fed was cutting or on hold for 29 months, even as the data remained strong. In the 1992-94 cycle, the Fed was on hold for a comparatively short 16 months.

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