Friday, March 9, 2018
Because it's Spring Training season for Major League Baseball, I can use the analogy that this morning's non-farm payroll numbers have knocked the cover off the ball. A blowout 313K new jobs were created in the month of February, more than 100,000 - roughly +50% - higher than expected. Revisions for the previous 2 months were also to the upside: +39K in January and +15K in December.
Though we've seen a strong labor market going back for much of the length of this 9-year bull market, we're really seeing laggard sectors such as Construction and Manufacturing zooming back to prominence. In fact, Construction's 61K new jobs led the way for job growth in the month, with 31K in Manufacturing also far better than we've seen in previous months and years. Retail gained 50K in February, as did Business Services, while Government jobs grew 26K.
The Unemployment Rate remained unchanged from January at 4.1%, which may seem curious with such huge gains in overall payrolls. But considering an additional 600,000 people joined the workforce last month - the highest level since June 1983 - what this instead demonstrates is that more of the chronically unemployed have decided to make a go of it in early 2018. That said, the U-6 (aka "real" unemployment) also stayed unchanged at 8.2% - also illustrating strong labor conditions - so we may look for some future revisions to iron out a few of these wrinkles.
However, if there is weakness to report in this release from the Bureau of Labor Statistics (BLS) it is in wage growth: Average Hourly Earnings rose only 0.1% last month, picking up the Average Hourly Wage 0.15% to $26.75 per hour. Year over year, earnings growth is 2.6% - not bad, but hardly consistent with what one would theorize with 4.1% unemployment and 300+ thousand new jobs just added. Economists have been predicting significant wage growth amid this robust labor market for a couple dozen months or so, but these figures stubbornly fail to push wage growth increases in a meaningful way to this point.
This is good for the market, however, because it presents a sort of "Goldilocks" scenario: high job growth but tepid wage growth. This keeps fears of acute inflation at bay for the time being, and even though everybody and their grandmother knows the Fed is going to raise rates again a week and a half from now, the worry that they would turn the screws a half-point rather than 25 basis points is quashed based on this new jobs data.
Pre-market futures bear this out: where the Dow was looking to open slightly lower ahead of the BLS report, it is now up triple digits and heading for perhaps a +200-point open. The S&P 500 looks to be 16 points higher at this hour (30 minutes before the opening bell) with the Nasdaq +50. Enjoy the sound of this home run thwacking off the bat. Spring is just around the corner…
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