Revised Expectations for an Earlier and Lower Unemployment Rate Peak March 11 2002 -- Standard & Poor's, a leading source for financial information and investment analysis said that the February 2002 U.S. jobs report released today shows that the recession has bottomed and that virtually all of the data for February signal that an expansion is underway. Standard & Poor's predicts that while the National Bureau of Economic Research (NBER) will wait for further data to set the trough, the markets can assume that the monthly data for March and April will extend February trends. Additional commentary from Standard & Poor's is available to subscribers on http://www.globalmarkets.com. Standard & Poor's reported that February's strength reflects the combination of an enormous tax stimulus effecting the economy over the January-April period, the accumulated impact of prior Federal Reserve easings, and a collapse in inventories that producers will soon be scrambling to address. "To be sure, the employment statistics were only strong relative to the low expectations of the markets,'' said Michael R. Englund, chief market economist, Standard & Poor's MMS. "But the employment data exist with a backdrop of accelerating sales and collapsing inventories. This, plus evidence from factory sector statistics, indicate that the turnaround is underway.'' The jobs report showed a 66,000 nonfarm payroll gain in February. And the workweek, at 34.1 hours, is still near recession territory. The small 0.1% gain in average hourly earnings is great news for the markets, but is characteristic of a loosening labor market. "The fall in the unemployment rate to 5.5%, after dropping to 5.6% in January from the 5.8% December peak, has altered our labor market outlook,'' stated Mr. Englund. "We now expect the unemployment rate to peak around 6% in the second quarter, instead of our prior 6.3% estimate.'' Standard & Poor's stated that the reduction in tax withholding starting in January had a big impact on disposable income, thereby contributing to the gains emerging in household spending. Standard & Poor's also added that this boost will be accompanied by robust tax refund payments through March, and depressed tax liabilities in April. The latter will result from capital losses during 2001 and low 2001 bonus payments typically associated with "under withholding.'' Just as tax cuts imply that household spending strength will continue, so the current inventory collapse adds credence to the view that the factory sector will continue to recover. Though Standard & Poor's projects only a small 0.2% gain in industrial production in February given the jobs data, the firm believes that the gain is highly likely to reflect the start of a string of increases.