For all the excitement on the headline jobs figure - February payrolls grew by 235,000, or 35,000 more than expected - private sector gains actually missed expectations when we include the revisions to the two prior months. Maybe that's why bond yields were lower after the report.
Expectations likely got ahead of themselves after Wednesday's ADP report. Smoothing this out, private sector job adds are still good, averaging 199,000 over the past three months compared with 189,000 over the past six months and 180,000 over the past 12.
What does this mean for actual economic growth? Well first quarter GDP is expected to be soft if the current estimates are any indication. The Atlanta Fed is predicting just 1.3 percent growth. What this means is productivity growth in the first quarter was weak because it's taking more and more jobs to generate a modest pace of economic activity. The hope is that we see a nice rebound in the second quarter due to pent up demand post election in both hiring and goods manufacturing with inventories most likely to build again off a lowered state.
A rate hike in March (this week) is baked in the cake and was so, even before the jobs numbers were even released. The question will then build over whether the Fed will raise again in June, which at this time seems very likely.
As we have mentioned in prior posts, we welcome higher rates as our short bond duration targets are in-line to take advantage of a rising rate environment. For those that worry that rising rates will dampen the equity markets, history shows us if rates move higher for the right reason, worrying might be unjustified. The chart below doesn’t show the most recent rate hike data, however, it would prove the point even more emphatically. There’s no doubt other factors will contribute to market volatility, but rate hikes due to economic growth have historically been positive.