Fra Handelsbanken:
Payrolls increased 313,000 in February – markedly above expectations
• Unemployment rate was unchanged at 4.1% due to an increase in the participation rate
• Wage growth declined from 2.8% to 2.6% which will take the edge off rate hike fears and support equity markets
Employment surge in February
Non-farm payrolls for February showed an increase in employment of 313.000 persons which was far above the consensus forecast of 205.000 and even above the most optimistic forecast according to Bloomberg (300.000). The stellar outcome was further underpinned by a total net revision of +54,000 in the previous two months.
This leaves the three month average from December to February at a very robust 242.000, which must be said to be a very strong outcome – not least given the late state of the business cycle. Government employment did add a total of 26,000 persons to the overall outcome, but private payrolls none the less also beat the consensus with a 287.000 gain in employment vs. expectations of 205.000.
Unemployment steady as participation rate increases
Despite the strong increase in employment in the establishment survey, the unemployment rate held steady at 4.1%. The household survey on which the unemployment figures are calculated did show an even bigger increase in employment of 785,000 persons but this was more than offset by an increase in the labour force of 806,000 persons. Thus, the participation rate climbed to 63%. That the economy is able to absorb this kind of employment growth without leading to even lower unemployment will most likely come as a boon for the Fed as it indicates a somewhat larger degree of slack in the labour market.
Wage growth scare not repeated
Of more importance for markets reaction to the figures, wage growth cooled from a downward revised 2.8% to 2.6% y-o-y in February. The spike in wage growth in January was a main catalyst for the severe market turmoil that prevailed, as it stoked inflation and rate hike fears in the market.
However, it was expected that the higher wage growth in January was affected by a curtailment of hours worked due to severe winter weather, and truly, as the workweek normalized in February, average hourly earnings also moderated. As the strong employment growth underpins the underlying strength of the economy, and as the easing in wage growth indicates that it has yet to inflict severe inflationary pressure, the reaction to the report should most likely be positive for equity markets.
It should perhaps also dampen some of the fears that the Fed is behind the curve. However, in our view the labour market is still tightening, and we do not believe that we can continue to see such strong labour market growth – which will be supported by fiscal policy – without wages and inflation beginning to pick up.
As the weather distortions are now out of the wage figures, next month will bring us better information on wage developments. Thus, even though today’s figures does present some leeway for the Fed, we still see the risk of higher wage growth and inflation to prompt the Fed to pick up its pace of rate hikes during the year.
Link to the full report: http://research.handelsbanken.se/Templates/Pages/Utils/PublicationRedirect.aspx?id=85415
