Podcast: February 2010 Jobs Data

Welcome, my name is Sean Simko. I am Managing Director of SEI Global Fixed Income Management. Today’s commentary focuses on February’s jobs data, including the nonfarm payroll number and the market’s initial reaction.

February’s payroll report was the most widely talked-about release so far this year. Much of the discussion centered on the potential for weather distortions due to the snowstorms that blanketed the East Coast and the impact this could have on the data. The labor market was expected to lose an additional 68,000 jobs, according to market surveys prior to the release. When all was said and done, a less-than-anticipated 36,000 jobs were lost, with construction continuing to feel the pain. Temporary help continued to add jobs, which is normally a solid precursor for future job growth.

While the recovery will take some time, we believe we are getting close to the tipping point where the labor market will start to add jobs. There is a high likelihood that we may see job growth as soon as next month. The question is whether or not this job creation will be sustainable. The economy needs to grow at a solid pace for companies to not only rebuild the workforce but expand it to meet demand.

The unemployment rate held firm at 9.7%, which caught market participants by surprise, as it was expecting to increase to 9.8%. Construction lost 64,000 jobs and goods producing lost 60,000 jobs. The economy has now lost approximately 8.4 million jobs since the recession began. The service producing sector added 42,000 jobs, as did education and health services, adding 32,000 jobs. It will be important to watch the continuing claims number as we move forward. Currently, it shows that those currently seeking jobs are having a difficult time finding them, which is not consistent with what we would want to see in a recovery. In the end, the survey was positive and laid the groundwork for job creation, which could arrive as soon as the upcoming payroll release in April.

The Treasury market traded very tentatively leading up to the release of the employment data. Uncertainty around weather distortions kept overall activity to the light side. The release of the payroll data gave an all-clear signal for yields in the Treasury market to march higher. An overall positive tone and better expectations regarding the economic outlook fueled this move. By mid-afternoon, the two-year was off 4 basis points to yield 0.89%. The 10-year underperformed the curve, with yields selling off by 8 basis points to yield 3.68%.

Trading in the Treasury market remains choppy and is expected to stay well within the current range. As the labor market and economy continue to improve, demand for Treasuries should start to wane. As this happens, we continue to feel that the 2- to 30-year curve is likely to flatten, driven by Fed rhetoric and the unwinding of its stimulus measures.

If you have any questions about this podcast or the financial markets, please contact your SEI representative. Thank you.