Continue Analyzing Incoming Data

1. Non-Farm Payrolls Beat Whisper Numbers. February’s non-farm payrolls report came short of expectations but exceeded many economists’ projections. New jobs came in at 151K for the month of February relative to the consensus of 160K. The unemployment rate ticked up 0.1 percentage points to 4.1%. Much of the street had been expecting a weaker report in the range of 120-125K, with Bloomberg economists predicting 65K. The private sector was a bright spot, with 140K new jobs in the month and wage growth of 4% y/y. Federal government jobs dropped 10K m/m, but this was in line with expectations.

Data is normalizing, but some data tells a different story. The Atlanta Fed’s GDP model has been the top headline over the last few weeks. Its model moved from projecting 3.8% growth in the current quarter to -2.8% in just three weeks. We now learned this weekend that the projected change in net exports may not have been accurate; 60% of the widening of the trade deficit was due to non-monetary gold. Meaning, the trade deficit that investors were expecting to hit GDP growth in the first quarter may in fact not be true. The Atlanta Fed admitted this – gold-adjusted GDP growth is 0.4% in the current quarter, relative to the model-reported -2.4%. When net exports are excluded from GDP growth, the economy is growing near 2%. We believe the economy will continue to grow above trend in 2025.

Additionally, the consumer remains balanced. Initial claims are averaging 224K over the last four weeks, which is well below recessionary levels of 350-375K. Companies are telling us that consumers are seeking value and cutting back on big ticket items, but as long as employment remains strong, the consumer should hold up. We continue watching initial jobless claims and consumer sentiment and will be attentive to this week’s inflation data.

Chart 1: Labor Market Data Has Been Volatile, But Healthy^[1]

2. Jerome Powell Remains Dovish. At Friday’s University of Chicago’s Monetary Policy Forum, Fed Chair Jerome Powell reiterated the Fed’s view that the economy is steady. Importantly, he said that the Fed does not intend to cut interest rates until it can assess the effect the new policies will have on the economy. “Sentiment readings have not been a good predictor of consumer growth in recent years,” according to Powell. Similar comments were made at our Day with the Stars event last week in New York City – many of the panels believe that the recent soft data is not a credible indicator of consumer activity. The Fed also knows this and is waiting to digest more economic data for a clearer picture of the economy.

The Fed is in no hurry to cut interest rates with 4% unemployment, 3% inflation, and a labor market growing above trend. But investors seem to think otherwise, now expecting three 75 basis points cuts in 2025 and a 36% chance for a cut in May. There is no doubt that the Fed’s neutral rate is closer to 3%, but when and how fast they get there is still to be known.

3. Fixed Income.  After a volatile week for Treasury yields on tariff uncertainty and growth concerns, yields ultimately ended the week higher across the curve as Chair Powell brought calm to markets. The 2-, 10-, & 30-year yields were higher by 1, 9, & 11 bps, respectively.

Credit spreads widened across investment grade and high yield last week, increasing 3 bps to +124 bps for investment grade and 9 bps to + 336 for high yield. Tax-exempt yields followed Treasuries higher, rising 1-11 bps across the curve. The IG primary market had its largest weekly level of issuance since Labor Day 2024, with 30 issuers coming to the market raising $73 billion. Credit ratings improved for the second week in a row as the main rating agencies issued 48 upgrades and 47 downgrades; within those changes, high yield issuers led the with the most upgrades.

4. The Week Ahead.

Earnings – Monday: ORCL; Wednesday: ADBE, CCI; Thursday: DG, ULTA.

Economics – Tuesday: NFIB Small Business Index, JOLTS Job Openings; Wednesday: CPI, Hourly Earnings; Thursday: Continuing Claims, Initial Claims, PPI; Friday: Michigan Sentiment.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[2]

Sources:

^[1] Source: FactSet. As of March 9, 2025.

^[2] Source: Bloomberg. As of March 10, 2025.

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