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Markets Commentary on US NFP

US jobs report shows 242,000 new hires but wages disappoint

  • US shares mixed after jobs report
  • Retailers, restaurants and health care drives US jobs growth
  • boost Fed rate hike prospects

  • Wage creation but not wage inflation

This is what Paul Ashworth, chief US economist at Capital Economics, has to say about the latest jobs report from the US.

“Overall, it’s clear that labour market conditions are still strong. The lack of a more marked pick-up in wage growth is the only missing element.

“But as far as the Fed is concerned, it is already seeing a clear acceleration in core price inflation, so it can’t delay raising interest rates for much longer.

“A June rate hike is coming.”

 

The unemployment rate at 4.9% printed unchanged from the prior month and as expected. According to the BLS, over the  past 3 months, job gains have averaged 228,000 per month.

The move higher in jobs was mostly driven by minimum wage jobs in healthcare (+57,000), retail (+55,000), and food service professions which rose by 40,000. This explains why for yet another month, wage growth was not only not there, but with a -0.1% decline after the January minimum wage hike induced bounce, posted a drop of -0.1%, which was the first drop since December 2014.

More details from the full report:

Total nonfarm payroll employment increased by 242,000 in February. Job growth  occurred in:

  • Health care and social assistance added 57,000 jobs in February.
  • Retail trade continued to add jobs in February (+55,000).
  • Food services and drinking places added 40,000 jobs in February.
  • Employment in private educational services rose by 28,000 in February
  • Construction employment continued to trend up in February (+19,000), with a gain of 14,000 in residential specialty trade contractors.
  • Employment in mining continued to decline in February (-19,000), with job losses in support activities for mining (-16,000) and coal mining (-2,000).
  • The average workweek for all employees on private nonfarm payrolls declined by 0.2 hour to 34.4 hours in February.

Jobs were good; earnings were a disaster – that’s the best summary of today’s jobs report,( February suffered the biggest ever monthly drop in average weekly earnings)

Most of the jobs that were created, if only on a goalseeked, seasonally adjusted basis, were of the lowest paying, worst possible quality as has been the case for the past 7 years.

As a result, as the BLS itself admitted, “job growth occurred in health care and social assistance, retail trade, food services and drinking places, and private educational services” – all of which are the lowest-paying wage groups.

 

As Bloomberg put it The jobs report adds to a string of data showing that the U.S. economy continues to strengthen, though at a pace not strong enough to force the Federal Reserve to raise interest rates at its policy meeting in March. Global equities have recouped more than half of this year’s losses since sinking to a 2 1/2-year low on Feb. 11, as speculation central banks from Asia to Europe stand ready to boost stimulus. China may announce its plans to revive growth at this weekend’s annual meeting of the National People’s Congress.

Futures traders put the odds of the second interest rate hike at 6 percent for the Fed’s March meeting, though projections for later in the year continue to rise, with the September meeting showing a greater than 50 percent likelihood.

The Stoxx Europe 600 pared an advance after the U.S. jobs report, after climbing as much as 1.3 percent. The benchmark gauge is heading for a third weekly gain, amid rallies in miners, carmakers and energy producers.

Currencies

The Bloomberg Dollar Spot Index fell 0.4 percent after the payrolls data, after the jobs report showed wages unexpectedly declined last month.

The pound fell against the euro, paring the biggest weekly gains in at least four months. The U.K. currency slipped 0.4 percent to 77.61 pence per euro, leaving its weekly gain at 1.6 percent.

Bonds

The cost of insuring corporate debt against default was set for the biggest weekly decline since October.

An index of swaps tied to subordinated debt issued by European financial companies was headed for the biggest weekly drop in a more than a year. The measure surged in February amid concerns about bank earnings.

Ten-year Treasuries note yields rose four basis points to 1.87 percent. Germany’s 10-year bund yield climbed four basis points to 0.21 percent.

Gold hits 13-month high

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