BAML: The Taper Continues

This morning’s job number was not bad enough to forestall the taper, and the weakness of January was likely transitory according to the Bank of America Merrill Lynch US Economics team (emphasis mine)…

Modestly disappointing, but no change of call

The economy only added 113,000 jobs in January, following job growth of 75,000 in December. Although it was hard to isolate the weather impact this month, we think the frigid temperature and snowstorms likely weighed on economic activity. The seasonal factors for nonfarm payrolls are quite large during the winter months and we find that payrolls are particularly sensitive to abnormal weather patterns.

Other components of the report were more encouraging, with the unemployment rate down to 6.6% from 6.7% as household jobs surged higher, offsetting a rise in the labor force. We also saw a decline in the U-6 measure of unemployment, suggesting a reduction in slack in the labor market. Nonetheless, wages were only up a sluggish 0.2% mom or 1.9% yoy.

On balance, this does not change our view for Fed policy or our optimistic outlook for the economy this year. We are penciling in a slowdown in growth in 1Q to 2.0%, in part due to poor weather conditions, but expect a rebound in 2Q to 3.3%. We think the Fed will look past the recent soft jobs data, especially in the context of strength elsewhere in the economy. Other indicators which are less sensitive to weather, such as consumer and business surveys, have continued to improve. We expect Fed Chair Yellen to stay the course at her testimony next week, reiterating her view that the economy is healing, allowing for a measured pace of tapering.


Weather or not
Bank of America Merrill Lynch – February 7th 2014

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