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Fast Comment USStellar employment but wage growth declines

  1. Payrolls increased 313,000 in February - markedly above expectations
  2. Unemployment rate was unchanged at 4.1 percent due to an increase in the participation rate
  3. Wage growth declined from 2.8 percent to 2.6 percent, 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. This was much 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 robust 242,000, a very strong outcome given the late state of the business cycle. Government employment added a total of 26,000 persons to the overall outcome, but private payrolls also beat consensus with a 287,000 gain in employment vs. the expectation of 205,000.
Unemployment steady as participation rate increases
Despite the strong increase in employment in the establishment survey, the unemployment rate was steady at 4.1%. The household survey on which the unemployment figures are calculated showed an even bigger increase in employment (785,000 persons), but this was more than offset by a 806,000 increase in the labour force. Thus the participation rate climbed to 63%. The fact 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 slightly more slack in the labour market.
Wage growth scare not repeated
Of more importance for the market 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, the higher wage growth in January was affected by a curtailment of hours worked due to severe winter weather, and as the workweek normalised in February, average hourly earnings also moderated. As the strong employment growth underpins the underlying strength of the economy, and as the easing of 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 will likely 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 give more information on the wage trend. Thus, even though today's figures give some leeway for the Fed, we still see a risk of higher wage growth and inflation prompting the Fed to pick up its pace of rate hikes during the year.


Jes Asmussen

Chief Economist Denmark

Denmark and The Netherlands

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