Transcripts

The Employment Picture Gives Wall Street A Much Needed Boost

SUSIE GHARIB: The Dow Jones Industrial Average finally posted a gain for the week, its first in three weeks, despite a mixed report today on the jobs market. Hiring by American businesses in February was the slowest in two years, but at the same time the unemployment rate dropped to 4.5 percent. As Scott Gurvey reports, the details of the employment data suggest the economy is holding up fairly well.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street welcomed today's numbers mainly because it had feared worse. Employers added 97,000 jobs in February. Revisions for the previous two months added 55,000 jobs to earlier estimates. Construction lost 62,000 jobs, mostly because of bad weather. Factory jobs fell by 14,000. That makes eight straight monthly declines for that sector. Brian Fabbri, chief economist of BNP Paribas, says the future for manufacturing is bleak.

BRIAN FABBRI, CHIEF ECONOMIST, BNP PARIBAS: The hours worked actually declined for the second month in a row. It's not very common for month to month, back to back changes or reductions in hours worked and that usually is a sign that manufacturing is really starting to fall off.

GURVEY: A separate household survey showed the unemployment rate falling to 4.5 percent. The numbers eased concerns the current slowdown in the economy is getting worse. But while job growth for February was weak, there were signs the labor market is tight. Average hourly earnings increased a larger than expected $0.06. That could be inflationary and bond prices fell on the news, traders fearing the Fed's next move will be a rate hike. Drew Matus, senior market economist at Lehman Brothers does see inflation ahead.

DREW MATUS, SENIOR MARKET ECONOMIST, LEHMAN BROTHERS: One of the areas of weakness in the economy has been capital equipment spending. And what that means is that firms haven't really set up for trying to offset rising labor costs. And that means that unit labor costs will rise and when unit labor costs rise, over time we would expect an increase in inflation.

GURVEY: The next Fed meeting is March 20 and 21 and in an exclusive interview last night on NIGHTLY BUSINESS REPORT, William Poole, president of the Federal Reserve bank of St. Louis and an member of the open market committee, said the challenge will be to balance the risk of inflation against the likelihood of recession.

WILLIAM POOLE, PRESIDENT, FEDERAL RESERVE BANK OF ST. LOUIS: I think those risks are pretty evenly balanced. It is certainly the case, though that the inflation risk is the more serious one from my perspective and would require quicker action to deal with.

GURVEY: Still, for now, the bond market is expecting the Fed to leave interest rates unchanged when it meets in two weeks. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.