There was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America jumped by 235K payrolls in February, higher than the +200K increase economists had expected. There was also a net gain of 9K jobs from revisions to the January and December figures, which altogether resulted in a 3-month (less-volatile) average payrolls gain of +209K. That was the best reading since September and well above many Federal Reserve (Fed) officials’ estimates for what is needed to keep up with U.S. population growth.
Unseasonably warm weather may have boosted the payrolls total last month, as evidenced by a 58K spike in construction hiring, the strongest print in almost a decade. Regardless, it is worth remembering that monthly payrolls gains greater than 200K this late in the cycle could be a sign that there is still some slack in the labor market, which is likely one of the reasons why wage growth remains sluggish. Indeed, average hourly earnings rose by 0.2 percent last month, below the 0.3 percent gain that was anticipated but the January figure was revised slightly higher. As a result, wages have now grown by 2.8 percent over the past twelve months, an improvement from the prior reading on annual growth but still well below the Fed’s target and weak compared to previous expansions.
As for joblessness in America, the official unemployment rate (U-3) fell to 4.7 percent in February, and the underemployment rate (U-6) slid to 9.2 percent, both near the best levels of the current business cycle. At the same time, the labor force participation rate rose to 63.0 percent in February, the highest reading since March of last year. Overall this was a solid job report that should make it easier for Fed officials to justify another interest rate increase at next week’s Federal Open Market Committee (FOMC) meeting. In fact, the market-implied odds of a hike at the March monetary policy meeting rose from an already elevated 93 percent to 97 percent immediately following this morning's release of the job report. Moreover, the Fed risks severely losing its credibility if rates are left unchanged next week.
Sources: Econoday, Bloomberg, Twitter, U.S. DoL, FRBSLPost author: Charles Couch