Jobs still top of mind

Jobs and the reports tracking them seem to still be tops of mind for business publications these days. I realize that we just talked about this last week, but there were several interesting coverage during the weekend.

From the New York Times, which just a few days before ran a front page story saying companies still weren’t hiring, was this piece:

Wall Street is hopeful that American companies, after years of gaining ground at the expense of their employees, will start to succeed because of the rising fortune of those workers.

Less than a week since the Dow Jones industrial average hit its all-time high, the broader Standard & Poor’s 500-stock index is on track to surpass its own 2007 high. The reason, in no small part, is because of investor confidence in the growing economic strength of American households.

This is a shift from the last few years, when stocks and corporate profits soared primarily because of cost-cutting and increased productivity from a shrinking or slow-growing work force. The Federal Reserve’s stimulus programs helped corporate America, but they did little to help improve the lives of most American workers, whose wages declined while unemployment remained stuck at high levels.

A surprisingly good employment report on Friday was the strongest of a number of recent indicators that the benefits of the Fed’s program are now starting to trickle down to ordinary Americans, who should, in turn, push up sales at American companies. In addition to brisk job growth in recent months, the February employment report gave some of the first evidence of a sustained upturn in wages, and showed that it was spread across many industries.

The improving job market could falter, particularly if cutbacks in government spending mandated by the so-called sequester take a substantial bite out of economic growth. But even a more modest upturn comes not a moment too soon for American companies.

Growth in corporate profits has slowed in recent quarters as the earlier gains from productivity and cost-cutting reached their limits. Many strategists are now seeing signs that the slowdown in expense reduction — the so-called bottom line — is being made up for by top-line growth in revenues from reviving American consumers.

Employers are adding to payrolls, despite what the Times said last week, according to the Wall Street Journal:

Employers stepped on the accelerator last month, hiring briskly enough to bolster the recovery but likely not enough to prompt the Federal Reserve to turn off its easy-money spigot.

The U.S. added 236,000 jobs in February, notching gains in almost every corner of the private sector. February’s gains were well above the 195,000-job-a-month average of the previous three months and pushed the jobless rate to a four-year-low of 7.7%.

Surging stock prices, mending housing and labor markets and a booming energy sector are among the tailwinds propelling the economy. U.S. stock markets rose following the report, with the Dow Jones Industrial Average ending at its fourth consecutive record close, finishing the week up 2.2% at 14397.07.

“The overall 236,000 number is nice, but the breadth of jobs growth across industries tells me that the recovery is broadening and likely gaining momentum,” said Mark Vitner, senior economist at Wells Fargo Securities LLC. “The mix of jobs is also changing. We’re creating higher-paying ones.”

Although February showed promising momentum, the Fed isn’t expected to put the brakes on its easy-money programs until it sees further, sustained gains.

Recent benchmarks, including measures of gross domestic product and manufacturing, reflect a recovery that is moving forward but at risk of losing pace as its main engine—consumer spending—is strained by higher taxes and gas prices. The recession in Europe and weakness in other U.S. export markets also pose threats, as do possible shocks from Washington’s budget wrangling.

Despite the headwinds, a growing number of businesses are pressing ahead with expansion.

But according to Jon Hilsenrath of the Wall Street Journal, the good news wasn’t enough for the Federal Reserve:

When Federal Reserve officials next meet later this month, they no doubt will welcome recent job-market improvements, but they also will want to see more.

Top Fed officials have made clear that the labor market’s health is their primary worry right now, and it is the main factor in determining how long they will continue their controversial bond-buying program, which is aimed at spurring more spending and investment. The central bank has said it wants to see “substantial progress” in the job market before pulling back, which likely would require several more encouraging employment reports like Friday’s.

“To me, there is still a ways to go,” Charles Evans, president of the Federal Reserve Bank of Chicago, said in an interview with The Wall Street Journal.

Recent comments made by top Fed officials suggest they are unlikely to shift from their plan to keep short-term interest rates pinned near zero and to purchase $85 billion per month of Treasury and mortgage-backed securities to lower long-term rates.

Much of the research coming out of the Fed in recent months has found notable benefits from bond buying in the form of lower long-term interest rates, which help drive spending and investment, particularly in interest-sensitive sectors like housing. However, internal and outside critics worry the programs could fuel inflation or market instability.

It seems that no one knows what to make of the jobs reports and what it means for the broader economy. Tune in for Tuesday’s analysis. It’s likely to be different.