Jobs market rebounded in February. Decreasing COVID-19 infections and rising vaccination levels led to a loosening of coronavirus restrictions in February that resulted in a substantial hiring surge. As a result, the US economy added 379K workers to nonfarm payrolls last month, more than doubling economists’ expectations, while the unemployment rate dipped to 6.2% from 6.4%. Much of the hiring was concentrated in the leisure and hospitality sector, the hardest hit segment of the economy over the past year.

Our Take: The February jobs report, and upward revisions for January, reaffirms that vigorous growth is indeed returning as the economy reopens from winter lockdowns. Evidence pointing to a significant winter weather impact suggests that an even stronger outcome would have occurred, were it not for clusters of severe cold and snow across much of the country last month.

Looking ahead, if you liked February’s jobs growth, you’re going to love March. With much of the economy remaining locked down in February as vaccination distribution was still in its nascent stages, the blowout February job results will likely be among the lowest payroll prints over the next several months. The March result could easily be twice as large, somewhere in the range of 700K+ in new jobs. All told, while the jobs data – historically the most influential piece of economic data on interest rates – seems to indicate continued improvement, total employment is still down around 9.5 million jobs from its pre-pandemic peak. The heady job gains last month won’t change the Fed’s calculus to keep short-term rates low for longer, as immense slack remains in the jobs market – still far exceeding that which followed the global financial crisis recession of 2007-09.

Bond markets dare the Fed to act. Global bond yields continued to rise as investors priced in a robust economic reopening that they fear will result in resurging inflation. The rise in yields – which is happening in almost every major developed economy – elicited varied responses from central bankers around the world. The Reserve Bank of Australia stepped up the pace of its bond buying program to curb rising yields while European Central Bank officials intervened verbally ahead of a rate-setting meeting scheduled for this week. Most importantly, the Fed was a relative outlier as Chair Powell once again avoided forcefully pushing back against the tide of increasing yields. Powell did say that the yield bounce 1) has caught his attention, and 2) that disorderly moves would be unwelcome, but, 3) stopped well short of implying that the Fed would change the composition of its quantitative easing program or suggest other steps to keep the yield surge from derailing a nascent economic recovery.

Our Take: Despite some consolidation in long-term yields – like the 10-year Treasury – last week, the yield rout of 2021 isn’t over yet. We can’t raise our yield forecasts fast enough, and now expect the 10-year Treasury to rise at least 0.50% higher than current levels, to settle somewhere in the neighborhood of 2.00% before year end. Adding fuel to the expected rise in yields is the successful passage of the ~$1.9 trillion fiscal stimulus package and the ensuing bond issuance from the Treasury to pay for it all. Finally, the improving vaccination picture is working on Main Street to help speed things along. Let’s just hope Spring break doesn’t bring with it another virus infection surge.