By Tim McLaughlin, Senior Vice President, Weichert Financial
A banner employment report this morning as employment data climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest level in three years, casting some doubt on whether the Federal Reserve can wait until 2014 before raising interest rates.
The 243,000 increase in payrolls was the largest increase since April and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed in Washington. The unemployment rate dropped to 8.3%, the lowest level since February 2009.
The jump in hiring shows companies are gaining confidence that the economic expansion will weather the European slump and may boost President Barack Obama’s re-election bid. The data comes one week after Fed policy makers said the economy wasn’t growing fast enough to push down the jobless rate, prompting them to extend a pledge to keep interest rates low for another two years. Based on the data this morning, there are conversations on trading desks that the Fed may not be able to stay on hold regarding interest rates as long as they think.
The Fed said on January 25th after a two day meeting that it would keep its benchmark lending rate low “at least” until late 2014 from a prior target of mid 2013. “We still have a long way to go before the labor market can be said to be operating normally,” Fed Chairman Ben S. Bernanke told the House Budget Committee in Washington yesterday. “Fortunately, over the past few months, indicators of spending, production and job market activity have shown some signs of improvement.”
The median projection in the Bloomberg survey called for a rise of 140,000 payrolls after an initially reported 200,000 gain in December. Estimates of the 89 economists ranged from increases of 95,000 to 225,000. Revisions also added a total of 60,000 additional jobs to payrolls in November and December. The Labor Department revised December’s gain to 203,000.
Takeaway: Fantastic news for the economy and for consumer confidence, particularly home seekers on the fence. A slight retracement in rates given this morning’s news, but rates still at historical lows with 30 year terms in the mid to high 3’s and 10-15 years in the high 2’s/low 3’s.