OVERNIGHT MONEY: February jobs forecast about 190,000

FRIDAY'S BIG STORY

Riding on a high: Forecasts for the February jobs report are looking pretty good, driven by the idea that employers are finally picking up the pace of hiring. 

Mark Zandi, chief economist with Moody's Analytics, said he is expecting the government's report on Friday to show a total gain of public- and private-sector jobs of 190,000, with a slight decline in the jobless rate to 7.8 percent from 7.9 percent. 

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A strong report should continue fueling the scorching-hot Dow Jones industrial average, which hit new record highs each of the past three days.

Evidence of an uptick in hiring — the four-week average of jobless claims hit a five-year low last week — and the housing market's continued recovery that is churning out construction jobs has helped send markets sky-high this week.

On Wednesday, the ADP National Employment Report showed that employers ramped up hiring in February, adding 198,000 to their payrolls. 

The increase was led by small businesses, which hired 77,000 workers last month, a reflection of the depth of their recovery from the prolonged economic downturn. 

Plus, the January report was revised upward by 23,000 to 215,000 jobs.

Still, in a strong economy, employers would be adding about 300,000 jobs a month, economists argue. 

Mercatus Center senior research fellow Keith Hall, a former Bureau of Labor Statistics commissioner, said the latest figures will need to show a marked improvement from the 157,000 jobs created in January, which was below the monthly averages for 2011 (175,000) and 2012 (181,000).

"We’ll see whether job creation can at least pick back up to the modest growth we had in 2012," Hall said. 

"But to support a stronger economic recovery, the country needs to add closer to 300,000 jobs per month. There is still a long way to go."

Zandi expressed concern that the $85 billion sequester that went into effect last week, combined with two years of steady spending cuts, could weigh on the economy's ability to expand.  

"The impact of the tax increases and government spending cuts won't be evident in tomorrow's jobs numbers," he said. 

"It's still too early for that. However, I would expect the fiscal drag to intensify in coming months and begin to weigh on job growth. Unemployment may even tick a bit higher this summer."

Job growth could drop to between 100,000 and 125,000 a month, and gross domestic product could take a heavy hit of 1.5 percentage points from the budget-cutting, he said. 

Still, Zandi is convinced that the economy will prove it is resilient enough to make it through the sharp budget cuts.

"If so, then the job market should gain traction and be in full swing by this time next year," he said. 

The fiscal headwinds faced this year should wane by 2014, Zandi predicts. 

Another key figure to examine in tomorrow's report is whether more people are entering the workforce, Hall said.

"Despite the end of the recession over three years ago, there has yet to be any sign of significant re-engagement with the labor market by discouraged workers. The labor force participation rate continued to remain at a low at 64 percent in January.”

Hall also said that while the economy needs job growth to increase, recent economic growth has been disappointing — the latest figures showed 0.1 percent growth in the final three months of last year — averaging 1.6 percent during the four quarters of 2012. 

"Typically, that level of GDP growth would coincide with even fewer new jobs being created," he said. “Unless economic growth catches up with the labor market, we could see more of a slowdown in job growth.”


LOOSE CHANGE

Stress relief: The latest round of "stress tests" are in, and it's good news for the nation's biggest banks. The Federal Reserve found that 17 of the 18 biggest U.S. banks could remain upright during a brutal recession with the minimum regulatory capital requirements intact. The "severely adverse" economic situation where these banks' books were tested included 12.1 percent unemployment and exceed any economic downturn in the last century outside of the Great Depression.

Of the 18 big banks tested, only Ally Financial came up short, as its Tier 1 capital, the basic capital that regulators demand a minimum amount of as a sign of financial strength, fell below the 5 percent threshold during the test.

The results has the banking industry declaring confidence that the industry is finally out of the woods five years after the financial meltdown, and now is looking forward.

"These results, achieved in the face of extreme assumptions and highly pessimistic scenarios, are further proof that the banking industry has rapidly regained its health and is strong enough to withstand even the most challenging economic circumstances," said Frank Keating, president and CEO for the American Bankers Association.

One less Levin: Sen. Carl Levin (D-Mich.) announced Thursday that he would not seek a seventh term in 2014, deciding to instead spend his last two years in the Senate pushing for progress on a variety of issues.

One of those areas will be offshore tax avoidance, an issue in which Levin, as chairman of the permanent subcommittee on Investigations, has long taken a deep interest. Most recently, Levin called for closing offshore tax breaks to help roll back sequestration. 

"Tax avoidance schemes that have no economic justification or purpose other than to avoid paying taxes may be legal but they should not be," Levin said in a statement announcing his retirement. 

"They add to the tax burden of ordinary Americans who have to pick up the slack and accelerate the economic inequality in our country. I want to fight to bring an end to this unjustified drain on the Treasury."

Carl Levin's older brother and squash partner, of course, is Rep. Sandy Levin (Mich.), the top Democrat at House Ways and Means.

Grover Norquist's next target: The NFL? 

OK, not really. But Norquist's Americans for Tax Reform did circulate a statement on Thursday that Joe Flacco, the Baltimore Ravens quarterback and now highest-paid player in the NFL, may not be the one bringing home the most cash after taxes. 

That honor, ATR says, would go to the New Orleans Saints quarterback Drew Brees. 

"Don’t be surprised if players begin to consider their tax liabilities even more now when making the decision of which team to ultimately sign with," ATR said, noting the vast tax differences at the state and local level.


CABINET WATCH

Filibuster survivor: The Senate confirmed John Brennan as director of the CIA on Thursday by a 63-34 vote, following a 13-hour filibuster led by Sen. Rand Paul (R-Ky.).

The final Senate vote comes weeks after contentious hearings concerning Brennan's ties to the Obama administration's armed drone program.

He could start the job by the end of the week. 


BREAKING NEWS

Ch-Ch-Changes: Senate Democrats plan to make major changes to House-passed legislation aimed at avoiding a government shutdown by tacking on three appropriations bills. 

Among other changes, the version put out by Senate Appropriations Committee Chairwoman Barbara Mikulski (D-Md.) would give the Obama administration greater flexibility to carry out this year’s $85 billion in spending cuts. 

The bill would also keep in place the $1.043 trillion top-line number for overall government spending that was included in the House bill. That number is then reduced by the sequester to $984 billion. 


ECONOMIC INDICATORS 

Wholesale Inventories: The Commerce Department will release its wholesale trade report for January that includes sales and inventory statistics from the second stage of the manufacturing process. The sales figures say close to nothing about personal consumption and therefore do not move the market.


WHAT YOU MIGHT HAVE MISSED

— House Republicans accuse SEC of delaying JOBS Act rollout
Boehner to Senate Dems: Don't 'get greedy'
— Senators blast financial regulators over 'prosecution-free zone for large banks'
— Pelosi urges minimum-wage hike
— NFIB: Small businesses want simpler code, lower taxes
— Consumers push borrowing up to all-time high
— Lawmaker unveils US economic engagement plan with Africa to counter China
— Trade deficit widens to $44.4 billion
Jobless claims fall to 340,000


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