US Adds 175,000 Jobs; First Sign of Thaw

The Bureau of Labor Statistics reported last week that the US economy added 175,000 jobs in February, significantly above expectations. January and February were volatile for financial markets. Unusually cold weather in the US delayed consumer goods purchases and slowed spending on typical expenditures such as eating out. Emerging market currencies, like those of Argentina and Venezuela, were devalued on accelerating inflation, which prompted central banks to raise local interest rates very suddenly around the globe. As a result US real GDP forecasts were lowered to 2.5% from prior predictions of 3.2%. Our position is that weather and emerging market weakness, including the current situation in Ukraine, are transitory in nature and the Fed will continue reducing monetary stimulus despite them. This unusually cold winter will eventually thaw and US exposure to weakened emerging markets via exports or the banking system is not substantial.  We continue to forecast rising interest rates in 2014 and fixed income portfolios can expect to reinvest current income in bonds with higher yields, and less risk, as the US economy continues to add jobs and grow.