- The February employment report showed another strong gain in the number ofjobs in the US. Overall, job growth was 295,000 and, taking into account the small 18,000 downward revision to January payrolls, the past three months have seen an average gain of 288,000. Looking at the details, job growth was broad based, although strength was most evident in the private service - providing sector. Government employment added 8,000 jobs. Construction employment continued to expand (+29,000) so the extraordinary cold weather in the latter part of February seems not to have influenced February payroll data.
- Weakness was evident in average hourly earnings . For all employees, averagehourly earnings increased 0.1% m/m after a 0.5% m/m increase in January. Thismeans the y/y growth rate is now back at 2.0%, not far from the average over the past two years. However, looking at the data series with a longer history (hourly earnings for production employees in the goods-producing industry and non-supervisory employees in the service-providing industries, which comprises four-fifths of total employment) gives a somewhat weaker picture. Here, average hourly earnings were flat on the month and the y/y rate declined further (see chart below).
- Unemployment fell to 5.5%, as the jump in the labour force in January waspartly reversed . The labour force declined 178,000 in February, after expanding1,051,000 in January. The employment measure from the household survey was up a modest 96,000 but again after adding 759,000 in January. These two factors combined give a fall in the unemployment rate to 5.5%. Labour force participation inched down a notch to 62.8% and has been basically flat over the past six months.
- Despite weakness in wages, solid growth in employment should give the Fedenough confidence in the labour market improvement to deliver a rate hike inJune . As we argued in Research US: Fed hiking cycle - an early start but a slowpace , wage inflation tends to be a lagging indicator and, with the current trenddown in unemployment, wage inflation should pick up later this year. It is alsolooking likely that the FOMC will remove the 'patient' phrase from the statementat its upcoming 17-18 March meeting . The risk to our rate hike call is that the Fedwill choose to wait and see for a couple more meetings, as both core inflation andwage inflation remain low.
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