In February, private payrolls saw a remarkable increase that exceeded expectations, bringing a wave of optimism following some lackluster data from other economic sectors. According to this morning’s report from the Labor Department, U.S. companies added 288,000 jobs last month—significantly higher than the consensus forecast of 230,000 reported by Briefing.com. This boost is particularly encouraging given that it contrasts sharply with the moderate growth indicated in this week’s ADP Employment Report for February.
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A notable point in Berkshire Hathaway’s latest letter to shareholders is Warren Buffett’s nod to what I term economic gravity, or the law of large numbers. While there are methods to occasionally counteract it, ultimately this gravitational force prevails. Buffett and his team have an impressive track record of succeeding where many others have faltered. However, a prolonged streak of success is beginning to weigh on Berkshire’s future outlook, as Buffett himself acknowledges. This prompts a reflection on the general concept of economic gravity regarding portfolio design and management.
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● U.S. factory orders have declined for the sixth consecutive month | Reuters
● While U.S. factory orders decreased, business investment saw an uptick | NY Times
● U.S. jobless claims reached their highest level since May | MarketWatch
● ECB raises GDP projections, anticipating zero inflation in 2015 | Reuters
● German industrial output rises for the fifth month as growth solidifies | Bloomberg
New claims for unemployment benefits rose unexpectedly last week, reaching the highest levels since last May. Could this be an early indication of problems for the labor market and, consequently, the economy? Not necessarily. This uptick could merely stem from seasonal weather disruptions caused by a particularly harsh winter. However, if this trend continues in the coming weeks, it could signal something more serious. Currently, the changes remain within a range indicative of “normal” fluctuations that suggest a healthy macroeconomic outlook. That said, the margin for error is decreasing, so upcoming reports will be crucial for clarity, whether positive or negative.
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Tomorrow’s February update from the Labor Department is projected to reveal a 230,000 increase in private nonfarm payrolls (seasonally adjusted), based on The Capital Spectator’s median forecast from various econometric estimates. This monthly prediction indicates a significant slowdown compared to January’s gain of 267,000.
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What can we anticipate from tomorrow’s payroll report from the U.S. Labor Department? As always, ADP’s assessment of job creation in the private sector provides insightful hints. Based on yesterday’s update: the government data is expected to show private payrolls exceeding 200,000 for last month, although the increase is likely to be considerably lower than January’s surge.
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● U.S. private sector adds jobs in February, but growth decelerates: ADP | Reuters
● Stronger services growth in the U.S. indicates resilience | Bloomberg
● Fed’s Beige Book: U.S. economic recovery persists despite challenges | RTT
● Eurozone retail PMI suggests further decline in sales | Markit
● PMI indicates global economic growth accelerated to a five-month high | Markit
● German factory orders experience the largest drop since August | RTT
According to the latest ADP Employment Report, U.S. companies added 212,000 jobs in February, reflecting a solid gain compared to the previous month. While this increase slightly fell short of the consensus forecast, it still indicates a healthy inclination toward expansion. Nevertheless, when analyzed in the context of recent trends, it becomes evident that the pace of growth in the private sector is slowing. This raises concerns about whether the recent acceleration in the U.S. economy is losing momentum, though it may take a couple more months to fully assess the situation. In the meantime, there’s growing unease about a potential return to a more sluggish growth pattern, reminiscent of the post-Great Recession era.
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A recent study titled “Evaluating Trading Strategies” published in The Journal of Portfolio Management has drawn considerable attention, prompting some to argue that econometric analysis of investment strategies is fundamentally flawed. This viewpoint is somewhat extreme, as the only alternative to backtesting is to invest in markets without any analytical framework whatsoever. Indeed, while backtesting can be misapplied if not conducted adhering to best practices, ultimately, every investor relies on some form of backtesting or analysis.
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● Eurozone retail sales surged in January | WSJ
● Eurozone Composite PMI indicates economic growth at a seven-month high | Markit
● Severe winter weather affected U.S. auto sales in February | NY Times
● German services PMI marks the sharpest rise in five months for February | Markit
● UK services PMI shows continued strong growth in the sector | Markit
● U.S. firms in China project less favorable conditions as the economy slows | Reuters
● India surprises with a second interest rate cut | BBC