U.S. job growth increased more than expected in February and wages rose steadily, which could give the Federal Reserve the green light to raise interest rates next week despite slowing economic growth.
KEY POINTS:
* Total payrolls up 235,000 vs 190,000 estimate & upwardly revised 238,000 prior (original 227,000)* Private payrolls up 227,000 vs 193,000 estimate & downwardly revised 221,000 prior (original 237,000)
* Unemployment rate down to 4.7 pct vs 4.8 pct (4.7 pct estimate)
* Average hourly earnings growth steady at 0.2 pct from upwardly revised 0.2 pct (originally 0.1 pct)
* U-6 rate falls to 9.2 pct from 9.4 pct* Labor force participation rate up to 63 pct from 62.9 pct
* Household survey: Workforce grew by 340,000, employed rose by 447,000, unemployed fell by 107,000
COMMENTS:
SAMEER SAMANA, GLOBAL QUANTITATIVE AND TECHNICAL STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST LOUIS:
“Nothing too surprising after the blowout ADP report on Wednesday.
“It is encouraging that labor force participation is coming up and underemployment is coming down, that is very positive from the standpoint of a broadening labor market recovery.
“With the markets basically pricing in a rate hike I think the Fed will just take that free pass.
“We still only expect two interest rate hikes this year, in March and September which leaves the Fed with an option open for December.
“In the short term we’re a little bit cautious (in stocks) because valuations are stretched. But as long as the economic data keeps improving and without inflation being an issue, any weakness becomes an opportunity to add (to equity longs).
“As long as PCE is sub 2 percent the Fed will err on the side of caution. Above 2.1 percent or 2.2 percent they will think it is time to emphasize price stability over unemployment.”
BRIAN JACOBSEN, CHIEF PORTFOLIO STRATEGIST, WELLS FARGO FUNDS MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“Decent weather helped construction employment, but even ignoring the weather-effects, this is a good jobs report. Employment gains were fairly broad-based, the labor force participation rate ticked higher, and wages rose 2.8 percent year-on-year. A Fed rate hike next week is in the bag.”
RUSSELL PRICE, SENIOR ECONOMIST, AMERIPRISE FINANCIAL SERVICES INC, TROY, MICHIGAN:
“Stronger economic activity, rising confidence levels, and favorable weather, all seemed to drive job growth as we start the year. Gains due to better weather, as evidenced by a surge in new construction hiring, likely represent a pull-forward of job growth, however, so we may see some pay-back as we get into the spring.
“The labor market is also already fairly tight. So the current pace of job growth seems unsustainable even though improved labor market health is pulling discouraged workers back into the market as reflected in the rising participation rate.”
KATHY JONES, CHIEF FIXED INCOME STRATEGIST, SCHWAB CENTER FOR FINANCIAL RESEARCH, NEW YORK:
“It’s more of a mixed report than the headline suggests. The market had prepared for a very strong number. The average hourly earnings rose less than expected so that might have disappointed so people. But it’s still a very good, solid report with the Fed on the path for higher rates. This should seal the deal for a rate hike next week. Yellen couldn’t be more clear last week.”
HEIDI LEARNER, CHIEF ECONOMIST, SAVILLS’ UNIT SAVILLS STUDLEY, NEW YORK:
“There’s nothing here that’s going to keep the Fed from hiking interest rates next week. It’s important to note that the unemployment rate for people 25 and older is actually 3.9 percent, so it’s hard to see why wage pressures wouldn’t possibly start to build. There’s nothing here that I see that’s discouraging, nothing that looks atypical.”
JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON:
“It’s a very solid report. However, the dollar has failed to appreciate given how market expectations were sky high for a robust report. Once again the wage number continues to overshadow and with wages rising in lackluster fashion that has tempered expectations for the Fed to raise rates at a faster pace this year.
“I would say this certainly puts the fork in a rate hike this month, however, the notion of more than three rate hikes seems a bit premature.
“There are so many balls in the air right now – there was the (European Central Bank meeting), Canada had an interesting jobs report and oil markets this week. It was just a tough task for the dollar to meet markets’ lofty expectations.”
PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS, NEW YORK:
“Two key numbers to focus on is the manufacturing number for February. That’s the biggest number we’ve seen in a year. Wages are perking up. The Fed is a slam dunk. They’re going to hike on Wednesday.
“The equity market is already up 15 percent in the last four months in anticipation of this. People are starting to say maybe this Trumponomic stuff has some validity to it.
“(Equity market) gains should be muted because a) you’re already up 15 percent and b) the Fed is in all likelihood going to hike on Wednesday.”
TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:
“This is a totally solid report, there’s not a better way to describe it. I think it’s perverse that a solid beat on the headline may come as a disappointment, but we have the bloated ADP to thank for that. By any measure this report is consistent with an exceedingly healthy labor backdrop and, I think more critically, it’s a number that will embolden the Fed to raise rates in March. There was an upward revision to the previous month’s wage growth, which was a nice outcome, given the fact that it disappointed last month. More critically is the pipeline, there is pipeline wage pressure and we know that because there is severely diminished wage slack at this point and that lends itself to continued increases in wages over the balance of the year.”
ALAN GAYLE, DIRECTOR OF ASSET ALLOCATION, RIDGEWORTH INVESTMENTS, ATLANTA, GEORGIA:
“The number was stronger than expected, and is consistent with some of the earlier reports suggesting strength in February. I suspect that there is a positive impact from milder weather in February which may have skewed this number to the high side, but the operative message is that the jobs market continues to strengthen, and that is likely to give the FOMC a green light to raise rates when they meet next week.”
MARKET REACTION:
STOCKS: S&P e-mini futures ESc1 add to gains
BONDS: 2- US2YT=RR and 10-year US10YT=RR Treasury yields little changed
FOREX: The dollar index .DXY slips led by gains in the euro EUR= and yen JPY=
RATE FUTURES: Fed funds contract for March 2017 FFH7 ticks lower
(Americas Economics and Markets Desk- +1-646 223-6300)
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