by Calculated Risk on 4/05/2013 10:55:00 AM

Note: I'll have more on the employment report soon.

The Department of Commerce reported:

[T]otal February exports of $186.0 billion and imports of $228.9 billion resulted in a goods and services deficit of $43.0 billion, down from $44.5 billion in January, revised. February exports were $1.6 billion more than January exports of $184.4 billion. February imports were $0.1 billion more than January imports of $228.9 billion.

The trade deficit was below the consensus forecast of $44.8 billion.

The first graph shows the monthly U.S. exports and imports in dollars through January 2013.

Click on graph for larger image.

Exports increased in February, and imports were essentially flat, so the deficit declined.

Exports are 12% above the pre-recession peak and up 3.2% compared to February 2012; imports are slightly below the pre-recession peak, and up 2% compared to February 2012.

The second graph shows the U.S. trade deficit, with and without petroleum, through February.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The decrease in the trade deficit in February was mostly due to a decrease in the volume of petroleum imports.

Oil averaged $95.96 per barrel in February, up from $94.08 in January, but down from $103.63 in February 2012.

The trade deficit with China increased to $23.4 billion in February, up from $19.4 billion in February 2012. Most of the trade deficit is still due to oil and China.

The trade deficit with the euro area was $8.1 billion in January, up from $5.8 billion in February 2012.  This is another sign of weakness in the euro area.

by Calculated Risk on 4/05/2013 08:30:00 AM

From the BLS:

Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. ...
...
The change in total nonfarm payroll employment for January was revised from +119,000 to +148,000, and the change for February was revised from +236,000 to +268,000.

The headline number was well below expectations of 193,000 payroll jobs added.  However employment for January and February were revised higher.

Click on graph for larger image.

NOTE: This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes.

The second graph shows the unemployment rate.

The unemployment rate decreased to 7.6% from 7.7% in February.

The unemployment rate is from the household report and the household report showed a sharp decline in the labor force - and that meant a lower unemployment rate.

The labor force (household survey) declined from 155.524 million to 155.028 million - a decline of 496 thousand.

The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate decreased to 63.3% in March (blue line). This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics.


The Employment-Population ratio was also declined to 58.5% in March (black line). I'll post the 25 to 54 age group employment-population ratio graph later.


The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

This was a disappointing employment report and worse than expectations. I'll have much more later ...

by Calculated Risk on 4/04/2013 09:06:00 PM

First, from CNBC: Nikkei Surges Past 13,000 on BOJ Surprise

Japan's benchmark Nikkei index traded nearly 4 percent higher on Friday while the yen plunged to a three-and-a-half-year low against the greenback ... The BOJ's shock therapy program to meet its 2 percent inflation target includes doubling the monetary base and purchasing long-dated government bonds. It plans to inject $1.4 trillion into the economy in less than two years.

And from the WSJ: Money Spigot Opens Wider

The Bank of Japan's new leaders delivered on their pledge to radically overhaul its strategy to revive Japan's economy, unveiling a package of easy-money policies Thursday so aggressive in scale and tactics that it surprised investors.

... "This is an entirely new dimension of monetary easing, both in terms of quantity and quality,'' the Bank of Japan's new governor, Haruhiko Kuroda, said Thursday. The BOJ said the programs would continue at least two years.

The strategy seeks to broadly change Japanese behavior and attitudes that have contributed to depressed spending, wages and prices over the past two decades.

"I will not use my fighting power in an incremental manner," Mr. Kuroda said at a news conference following the central bank's two-day meeting. "Our stance is to take all the policy measures imaginable at this point to achieve the 2% target in two years."

Friday economic releases:
• 8:30 AM ET, the Employment Report for March will be released. The consensus is for an increase of 193,000 non-farm payroll jobs in March; the economy added 236,000 non-farm payroll jobs in February. The consensus is for the unemployment rate to be unchanged at 7.7% in March.

• Also at 8:30 AM, Trade Balance report for February from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $44.8 billion in February from $44.4 billion in January.

• At 3:00 PM, Consumer Credit for February from the Federal Reserve. The consensus is for credit to increase $16.0 billion in February.

by Calculated Risk on 4/04/2013 05:55:00 PM

Fed Vice Chair Janet Yellen gave an overview about the importance of communication in monetary policy today: Communication in Monetary Policy. Here are a few excerpts related to the eventual exit plan:

The Federal Reserve's ongoing asset purchases continually add to the accommodation that the Federal Reserve is providing to help strengthen the economy. An end to those purchases means that the FOMC has ceased augmenting that support, not that it is withdrawing accommodation. When and how to begin actually removing the significant accommodation provided by the Federal Reserve's large holdings of longer-term securities is a separate matter. In its March statement, the FOMC reaffirmed its expectation that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the current asset purchase program ends and the economic recovery has strengthened. Accordingly, there will likely be a substantial period after asset purchases conclude but before the FOMC starts removing accommodation by reducing asset holdings or raising the federal funds rate.

To guide expectations concerning the process of normalizing the size and composition of the Federal Reserve's balance sheet, at its June 2011 meeting, the FOMC laid out what it called "exit principles." [Note: see below for "exit principles"] In these principles, the FOMC indicated that asset sales would likely follow liftoff of the federal funds rate. It also noted that, in order to minimize the risk of market disruption, the pace of asset sales during this process could be adjusted up or down in response to changes in either the economic outlook or financial conditions. For example, changes in the pace or timing of asset sales might be warranted by concerns over market functioning or excessive volatility in bond markets. While normalization of the Federal Reserve's portfolio is still well in the future, the FOMC is committed to clear communication about the likely path of the balance sheet.

There will come a time when the FOMC begins the process of returning the federal funds rate to a more normal level. In their individual projections submitted for the March FOMC meeting, 13 of the 19 FOMC participants saw the first increase in the target for the federal funds rate as most likely to occur in 2015, and another expected it to occur in 2016. But the course of the economy is uncertain, and the Committee added the thresholds for unemployment and inflation, in part, to help guide the public if economic developments warrant liftoff sooner or later than expected. As the time of the first increase in the federal funds rate moves closer, in my view it will be increasingly important for the Committee to clearly communicate about how the federal funds rate target will be adjusted.
emphasis added

Here are the "exit principles" that Yellen discussed from the June 2011 minutes: Exit Strategy Principles.

by Calculated Risk on 4/04/2013 02:13:00 PM

On Friday, at 8:30 AM ET, the BLS will release the employment report for March. The consensus is for an increase of 193,000 non-farm payroll jobs in March, and for the unemployment rate to be unchanged at 7.7%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 158,000 private sector payroll jobs in March. This was below expectations of 205,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, although the methodology changed last year. In general this suggests employment growth below expectations.

• The ISM manufacturing employment index increased in March to 54.2%, up from 52.6% in February. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased by a few thousand in March.

The ISM non-manufacturing (service) employment index decreased in March to 53.3%, down from 57.2% in February. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for services, suggests that private sector BLS reported payroll jobs for services increased almost 150,000 in March.

Added together, the ISM reports suggests about 150,000 jobs added in March.

• Initial weekly unemployment claims averaged about 354,000 in March. This was about the same as in February.

For the BLS reference week (includes the 12th of the month), initial claims were at 341,000; down from 366,000 in February.   The recent increase in claims (probably due to the sequestration budget cuts) was probably before the reference week (when the BLS conducts the employment surveys).

• The final February Reuters / University of Michigan consumer sentiment index increased to 78.6, up from the February reading of 77.6. This is frequently coincident with changes in the labor market and stock market, but also strongly related to gasoline prices and other factors. This might suggest a stronger employment report, but the level still suggests a weak labor market.   Note: the preliminary index dipped suggests some weakness mid-month.

• The small business index from Intuit showed 10,000 payroll jobs added, the same as in February. This index remains disappointing.

• And on the unemployment rate from Gallup: Seasonally Unadjusted Unemployment Unchanged in March

Gallup's unadjusted unemployment rate for the U.S. workforce was 8.0% for the month of March, the same as in February, but a modest improvement from 8.4% in March 2012.

Gallup's seasonally adjusted U.S. unemployment rate for March was 7.8%, a slight uptick from 7.6% in February, but down since March 2012.

Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

• Conclusion: The employment related data was mixed in March.  The ADP and ISM reports suggest a decrease in hiring, the small business index was weak, but weekly claims for the reference week were lower in March than in February when the BLS reported 236,000 payroll jobs were added.  There is always some randomness to the employment report, but my guess is the BLS will report somewhat below the consensus of 193,000 jobs added in March.