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The Fed is maintaining loose monetary policy according to recent FedSpeak. And the proverbial spiked punch bowl is lifting the spirits of equity markets as the Dow hit record highs. And the latest jobs report was better than expected.
 Equities posted notable gains for the week, largely on continued belief that the Fed would keep monetary policy easy for some time.
On Monday, on an otherwise quiet day, Federal Reserve Vice Chairman Janet Yellen said the Fed should continue with $85 billion in monthly purchases of mortgage-backed securities and Treasuries. She also indicated that the Fed should track potential costs and risks of current quantitative easing. Her comments lifted stocks. On Tuesday, stocks rose sharply on a better-than-expected ISM non-manufacturing report and on Chinese officials indicating that the country would maintain its growth target. The Dow closed at a record high.
 At mid-week, ADP’s private payrolls numbers beat expectations and more than offset a somewhat disappointing Beige Book, leading most indexes to continue upward. Gains continued Thursday as investors became optimistic about economic growth. A decline in initial jobless claims pointed to a pick-up in the labor market's recovery. At week’s end, the employment situation report showed sharply higher payroll employment than expected, boosting equities.
Equities were up this past week. The Dow was up 2.2 percent; the S&P 500, up 2.2 percent; the Nasdaq, up 2.4 percent; the Russell 2000, up 3.0 percent; and the Wilshire 5000, up 2.3 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 9.9 percent; the S&P 500, up 8.8 percent; the Nasdaq, up 7.4 percent; the Russell 2000, up 11.0 percent; and the Wilshire 5000, up 9.4 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields rose for the week, essentially on the view that the recovery is gaining momentum somewhat. Rates rose gradually throughout the week. Slightly higher increases in yields were seen on Thursday after initial jobless claims fell and on Friday after a positive employment situation report. Rates are firming despite FedSpeak indicating that policy rates are going to remain low for quite some time. Indeed, despite the firming in rates, they remain low.
For this past week Treasury rates were up as follows: the 2-year note, up 1 basis point; the 5-year note, up 15 basis points; the 7-year note, up 10 basis points; the 10-year note, up 21 basis points; and the 30-year bond, up 20 basis points. The 3-month T-bill slipped 1 basis point.
 The spot price of West Texas Intermediate was little changed this past week. The biggest daily swings were on Monday and Thursday. Crude decline almost a dollar a barrel Monday on news that China’s service industries had eased to the slowest growth rate in five months, suggesting softening in demand for oil. On Thursday, crude rose a little over a dollar after initial jobless claims in the U.S. unexpectedly fell.
Net for the week, the spot price for West Texas Intermediate rebounded a modest 85 cents per barrel to settle at $91.83.
The economy is showing moderate progress as employment picked up—at least for the month of February. And the ISM non-manufacturing survey added to this view. However, the monthly trade deficit reversed in the wrong direction and the Fed’s Beige Book was not so positive.
 The jobs market has improved more than expected with a sizeable gain in payroll employment. The unemployment rate declined to 7.7 percent from 7.9 percent in January. Market expectations were for a 7.8 percent unemployment rate.
Payroll jobs in February were much stronger than expected. They posted a gain of 236,000, following an increase of 119,000 in January (originally up 157,000) and an increase of 219,000 in December (previously up 196,000). The net revisions for December and January were down 15,000. Analysts forecast a 171,000 rise for February.
Private payrolls advanced 246,000 in February, following a boost of 140,000 in January (originally 166,000). Expectations were for a 195,000 gain.
In the private sector, strength was seen in both goods-producing and service-providing sectors but led by the latter. Service-providing jobs increased 179,000 after a 99,000 rise in January. The February gain was led by subcomponents for professional business services, up 73,000; health care, up 32,000; and trade & transportation, up 30,000 (retail up 23,700). The improvement in employment appears to be widening across industries.
Goods-producing jobs jumped 67,000 after a 41,000 gain in January. Construction jumped 48,000 in the latest month with mining rising 3,000 and manufacturing up 14,000. Construction is one of the bright spots, having added 151,000 jobs over the last five months.
Government jobs declined 10,000 in February, following a drop of 21,000 the month before. Weakness was largely in state & local government education which declined 7,900 in February.
 Earnings have been oscillating but upward. Average hourly earnings increased 0.2 percent in February, following a gain of 0.1 percent January. The average workweek edged up to 34.5 hours in February from 34.4 hours the month before.
Turning to detail for the household survey, decrease in the unemployment rate reflected a 130,000 drop in the labor force, a 170,000 rise in household employment, and a 300,000 decrease in unemployed.
Looking ahead, there are positives for industrial production and personal income. National manufacturing growth is likely to be on the plus side as production worker hours rebounded 0.5 percent in February. This should boost the manufacturing component in industrial production. Aggregate weekly earnings jumped 0.6 percent in February, pointing to a healthy gain in the private wages & salaries component in personal income.
Overall, the latest jobs report was notably positive. This is good news for the economy. The only negative is that it may boost chatter of the possibility of the Fed ending quantitative easing sooner than earlier believed. However, the Fed almost certainly is not going to turn policy on one month’s data.
 Student loans continue to drive up consumer credit which otherwise is not signaling much strength in consumer demand. Consumer credit rose $16.2 billion in January, right in line with a year-and-a-half of mid-teen double digit growth. But the gains all along have been clumped on the non-revolving side, not the revolving side where credit cards are tracked and where growth is much slower with a only fractional gain in the latest report.
In contrast, non-revolving credit jumped $16.0 billion and followed December's upwardly revised $18.3 billion jump which, outside a definitional break in the data in 2010, is the largest monthly increase in 11-1/2 years. Though vehicle sales have been contributing strongly to this component in recent months, January's gain reflected yet another surge in the student loan component, a surge not related to consumer spending.
 First quarter GDP is not being helped by the trade component—at least not in January. The U.S. trade balance widened to $44.4 billion from $38.1 billion in December. Exports declined 1.2 percent after gaining 2.2 percent in December. Imports rebounded 1.8 percent after a 2.6 percent drop the prior month.
 The worsening in the trade gap was primarily due to the petroleum deficit which moved to $24.3 billion from $18.6 billion in December. The nonpetroleum goods deficit grew a bit—to $37.0 billion in January from $36.8 the prior month. The services surplus slipped to $17.3 billion from $17.9 billion.
Goods export weakness in January was in industrial supplies, down $2.6 billion. Modest gains were seen in capital goods excluding autos, autos, consumer goods, and food, feeds & beverages.
Goods imports were led by industrial supplies, up $4.0 billion, with crude oil up $3.0 billion. Capital goods excluding autos rebounded while autos and consumer goods declined. Foods, feeds & beverages were essentially unchanged.
In inflation adjusted numbers, the trade deficit worsened in January to $48.0 billion from $44.2 billion in December. The fourth quarter average for the chain-dollar deficit was $47.3 billion.
Recent numbers on the trade front have been uneven. After improvement in December, the January worsening points to drag on first quarter GDP growth.
 Another sign of improvement in the recovery comes from the ISM non-manufacturing survey. It covers the bulk of the economy—services, construction, mining, and agriculture.
The ISM's non-manufacturing index rose nearly one point to a higher-than-expected level of 56.0 which indicates a stronger pace of overall growth relative to what was already a strong rate in January.
Forward momentum is moderately good as the new orders index was up a very sharp 3.8 points to 58.2 with backlogs posting a 5.5 point jump to a very strong 55.0. New orders coming in and old orders piling up is a good mix for the employment outlook. And non-manufacturers are already hiring, at 57.2 which may be down three tenths from January but is still an exceptionally strong rate of monthly employment growth.
In contrast, the Fed’s Beige Book pointed to a slower recovery. The Beige Book was on the soft side. Two districts—Boston and Chicago—reported slowing since the mid-January report with the other 10 districts split evenly between moderate or modest growth. In mid-January, all 12 reported moderate or modest growth.
Retail sales slowed in several districts though auto sales remain strong. Manufacturing is improving modestly with residential construction strengthening. Rising home prices are singled out as a plus. The report says loan demand is stable to higher with financing, for commercial development at least, widely available.
Price pressures, and this is a plus for the doves, are mostly modest with few businesses planning to increase selling prices. Wage pressures are described as limited. But several districts do report a rise in retail prices while raw materials, pulled up by higher oil prices, are showing pressure.
Hiring plans, and this is another plus for the doves, remain limited, though most districts report modest improvements in labor market conditions.
There were mixed signals on the economy this past week. Job growth and ISM clearly improved. But the impact of weakness in Europe has slowed international trade. And the Fed’s Beige Book showed softness. For the upcoming Fed policy meeting at mid-month, there is ammunition for both hawks and doves—notably on the debate when to start unwinding quantitative easing. But the doves outweigh the hawks and policy is likely to remain as is. The punch bowl likely is not going to be taken away anytime soon.
The highlight of the week is retail sales for February. Employment was better than expected for the month but are higher payroll taxes and delayed income tax returns cutting into sales' There are signs of a rebound in manufacturing and the national number for February posts this week.
The NFIB Small Business Optimism Index improved nine tenths in January but remained depressed at 88.9. Most readings did improve in the month, led by the economic outlook and earnings trend, but levels remained near record lows. Hiring and plans for job creation also improved.
NFIB Small Business Optimism Index Consensus Forecast for February 13: 90.1
Range: 87.0 to 91.0
The U.S. Treasury monthly budget report showed a very rare surplus in January of $2.9 billion but this was due to special calendar factors excluding which the government showed a deficit of $13 billion in the month. Still this was very low. Looking ahead, the month of February typically shows a deficit for the month. Over the past 10 years, the average deficit for the month of February has been $159.1 billion and $208.9 billion over the past 5 years. The February 2012 deficit came in at $231.7 billion.
Treasury Statement Consensus Forecast for February 13: -$205.0 billion
Range: -$238.0 billion to -$203.0 billion.
Retail sales in January edged up 0.1 percent, following gains of 0.5 percent in both November and December. Motor vehicle sales eased 0.1 percent but followed a robust 1.2 percent jump in December. Ex-auto sales in January advanced 0.2 percent after increasing 0.3 percent in December. Excluding both autos and gasoline components, sales gained 0.2 percent after increasing 0.7 percent in December and following a 0.8 percent boost in November.
Retail sales Consensus Forecast for February 13: +0.5 percent
Range: -0.6 to +1.0 percent
Retail sales excluding motor vehicles Consensus Forecast for February 13: +0.6 percent
Range: -0.7 to +1.1 percent
Less motor vehicles & gasoline Consensus Forecast for February 13: +0.3 percent
Range: 0.0 to +0.9 percent
Import prices rose a sharp 0.6 percent in January, pulled higher by a 2.9 percent monthly jump in petroleum prices. This reflects the recent run up in crude oil prices. Excluding petroleum, import prices inched only 0.1 percent higher in the month with the year-on-year rate at only plus 0.2 percent.
Import prices Consensus Forecast for February 13: +0.6 percent
Range: +0.1 to +0.9 percent
Export prices Consensus Forecast for February 13: +0.2 percent
Range: -0.3 to +0.3 percent
Business inventories rose a modest 0.1 percent in December which made for a 1.4 percent sequential gain from the third quarter. The sequential gain for business sales was slightly higher, at 1.5 percent which brings down the stock-to-sales ratio very slightly to 1.278 versus the third quarter's 1.283. More recently, factory inventories for January rose 0.5 percent while wholesaler inventories gained 1.2 percent.
Business inventories Consensus Forecast for January 13: +0.5 percent
Range: +0.1 to +0.8 percent
Initial jobless claims fell 7,000 in the March 2 week to 340,000. The four-week average, down 7,000 to 348,750, is at its lowest level since March 2008. The average is also slightly lower than the month-ago comparison which points to improvement in the labor market. Continuing claims are also at a recovery low, at least the four-week average which is down 37,000 to 3.122 million.
Jobless Claims Consensus Forecast for 3/9/13: 350,000
Range: 335,000 to 355,000
The producer price index rebounded 0.2 percent, following a dip of 0.3 percent the prior month. The core rate, which excludes both food and energy, gained 0.2 percent, following a rise of 0.1 percent in December. Food inflation increased 0.7 after dropping 0.8 percent in December. Energy costs in January slipped another 0.4 percent, following a decline of 0.6 percent in December. Gasoline declined 2.1 percent after decreasing 1.8 percent in December. Within the core, most of the January advance can be traced to a 2.5 percent rise in the index for pharmaceutical preparations. While crude oil prices dipped in early March, the February average was up and suggests upward pressure on the headline number for the PPI.
PPI Consensus Forecast for February 13: +0.6 percent
Range: +0.2 to +1.5 percent
PPI ex food & energy Consensus Forecast for February 13: +0.2 percent
Range: +0.1 to +0.2 percent
The U.S. current account deficit for the third quarter came in at $107.5 billion, down from a slightly revised $118.1 billion in the prior quarter. The trade deficit on goods, which includes oil imports, fell to $173.9 billion from $185.7 billion in the prior quarter. Also helping was the balance on services which rose $1.1 billion to a surplus of $49.4 billion. The improvement in the trade data helped offset slightly wider deficits on investment income and unilateral transfers.
Current account Consensus Forecast for Q4 12: -$111.9 billion
Range: -$144.0 billion to -$108.3 billion
Quadruple Witching
The consumer price index for January was unchanged—the same as in December. The core CPI—excluding food and energy—increased a strong 0.3 percent after edging up 0.1 percent in December. By major components outside the core, energy declined 1.7 percent in January, following a drop of 0.8 percent the month before. Gasoline fell 3.0 percent after dropping 1.9 percent in December. At least some of the decrease in energy was due to special seasonal adjustment by the BLS. Increases in the indexes for shelter and apparel in January accounted for much of the increase in the index for all items less food and energy, with advances in the indexes for recreation, medical care, and airline fares also contributing. While crude oil prices dipped in early March, the February average was up and suggests upward pressure on the headline number for the CPI.
CPI Consensus Forecast for February 12: +0.5 percent
Range: +0.4 to +0.7 percent
CPI ex food & energy Consensus Forecast for February 13: +0.2 percent
Range: +0.1 to +0.2 percent
The Empire State manufacturing index in February surged 18 points to 10.04 for the first positive reading since July. A positive reading for this index indicates month-to-month growth in general business conditions. Details showed a similar surge in new orders which was very good news for future shipments and employment.
Empire State Manufacturing Survey Consensus Forecast for March 13: 10.00
Range: 2.00 to 14.00
Industrial production in January fell back but after strong gains in December and November. Industrial production in January slipped 0.1 percent, following an advance of 0.4 percent the month before and a 1.4 percent jump in November. In January, the manufacturing component declined 0.4 percent, following a boost of 1.1 percent in December and an increase of 1.7 percent in November. The output of utilities gained 3.5 percent in January while production at mines fell 1.0 percent. Capacity utilization for total industry eased to 79.1 percent from 79.3 percent in December. Looking ahead, national manufacturing growth is likely to be on the plus side as production worker hours rebounded 0.5 percent in February. This should boost the manufacturing component in industrial production.
Industrial production Consensus Forecast for February 13: +0.5 percent
Range: +0.2 to +1.0 percent
Manufacturing production component Consensus Forecast for February 13: +0.3 percent
Range: +0.2 to +0.7 percent
Capacity utilization Consensus Forecast for February 13: 79.4 percent
Range: 79.0 to 79.6 percent
The Reuter's/University of Michigan's consumer sentiment index for final February rose smartly to 77.6 from a mid-month reading of 76.3. The implied pace for the last half of the month was about 79 which is well above January's 73.8 when the payroll tax shock first struck. Both expectations, at 70.2 versus a mid-month 68.7, and current conditions, at 89.0 versus 88.0, showed gains.
Consumer sentiment Consensus Forecast for preliminary March 13: 77.5
Range: 73.0 to 80.0
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books.
Econoday Senior Writer Mark Pender contributed to this article.
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