Post-NFP: slack in the economy may take longer to sort out

AFTER THE RELEASE:

"Will the Fed raise rates three or four times in 2018? We will not have a definite answer until year-end, but the Fed will undoubtedly provide an indication at the upcoming Fed decision. The Fed currently projects three hikes in 2018, but Powell hinted that an upgrade to four rate rises is on the cards and will still be considered gradual. 
But that was before the Non-Farm Payrolls report, which showed a slowdown in wages from 2.9% to 2.6%. Now that doubts have crept in, the inflation report may provide an answer. " Yohay Elam

"The focus of the market will remain on the global economy after Friday’s release of US jobs data smashed expectations as employment grew by a solid 313 thousand, which was the strongest showing in 18 months. Average hourly earnings however grew only modestly, up 0.1% month-over-month. But this was excellent news for equities as it helped to keep the prospects of even quicker rate rises in check. Those expectations may have to be revised however if this week’s release of inflation data show that the tighter labour market conditions are boosting price levels." Fawad Razaqzada

"...wages grew less than expected, soothing the inflation fears and pointing to a gradual rise in inflation this year. Average hourly earnings grow 0.1%, a slowdown from the 0.3% rise in January. The year-on-year wage growth slows down to 2.6% from 2.9% in the previous month. Recall that a month ago a jump in wages got investors worried about inflation and set off a stock market decline, giving S&P 500 its first 10% decline in 2 years. An overheating economy raises speculation the Fed might raise rates more aggressively than it has planned. This could damper lending, hiring and business expansion." Elliott Wave Forecast Team

"The gov’t reported a super strong employment number – 313k new jobs vs the expected 205k and the kicker was that they also reported reduced pressure on wages showing an annual pace of + 2.6% y/y vs. last on months +2.8% rate – and this took the air out of the inflation argument (at least for this month) ….and that is all traders and investors needed to hear…. Futures exploded in the seconds after the report was published on Fridaysetting us up for a RISK ON day…. Stocks jumped, the VIX fell, gold fell, dollar fell, bonds fell as stocks continued to recover – and the angst & nervousness that has been front and center is now a distant memory." Kenny Polcari

"US employment numbers were a mix on Friday. Wage growth dropped to 0.1% in February, down from 0.3% a month earlier. This missed the estimate of 0.2%, and marked the lowest gain in four months. The news was much better from nonfarm payrolls, which soared to 313 thousand, crushing the estimate of 205 thousand. The strong reading has eased concerns about the Fed raising rates four times in 2018." Kenny Fisher

"The numbers we saw on Friday provided the perfect balance of strong job creation and softer wage growth which does not necessarily trigger faster rate hikes. The much higher participation rate was a clear reminder that, while unemployment is at a 17-year low, there is still some slack in the economy which may take longer to sort out and explain why wage growth and inflation is so muted.
This is why we didn’t see the kind of knee jerk reaction in the markets that we saw a month ago. Policy makers will likely be looking at the data and see it as evidence that slack still remains and no additional tightening is needed as a result of the strong employment gains. Of course, this is just one jobs report and future reports could show stronger wage growth but for now, investors are comfortable with the numbers." Craig Erlam

 

BEFORE THE RELEASE:

 

"So onto the payrolls and expectations today are for a reading of 205K, with average hourly earnings dropping slightly to 0.2% from last month’s 0.3% on a monthly basis. Wages are still looking like the most important reading here as the big movements in markets will be on hints towards 3 or 4 rate hikes. Slightly higher than expected wage growth could see a slight pop higher in inflation expectations which in turn could give the US dollar a short term shot in the arm." James Hughes

"The Average Hourly Earnings section of the Non-Farm Payrolls report remains the primary figure to watch. Higher wages imply a job market that is genuinely around full employment and more importantly, it means more profound inflationary pressures. And thus a quicker interest rate rises and a stronger US Dollar. 
[...]
The forward-looking ISM purchasing managers' indices for February also point to elevated economic activity: both figures beat expectations.
The ADP report for the private sector also showed a second month of job growth around 235,000, an environment that allows for faster wage rises. Moreover, jobless claims during February continued dipping to lower ground, eventually reaching the lowest levels since 1969. 
All these positive signs open the door to higher wage growth." Yohay Elam

"Most economic indicators across the month have pointed to potentially stronger NFP’s, for example the ADP payrolls were firmer than forecast just this week. However, the ISN non-manufacturing let the side down and points to a weaker reading today.
Even if NFP come in slightly weaker than forecast, this is unlikely to prevent the Fed from raising rates in March, a move which is already 100% priced into the market according the Fed Funds. Therefore, it would take a really disastrous report to have a hard-hitting impact on the dollar, something we consider to be unlikely." Ipek Ozkardeskaya

"Headline Non-farm Payrolls are always a massive driver of markets and are expected to remain at 200,000 (200,000 last month) however in the wake of the strong ADP number on Wednesday this increases the potential for an upside surprise. Despite this though, Average Hourly Earnings will take the main focus after such a big upside surprise last month. The market expects earnings to grow +0.2% for the month but due to strong comparatives this would be a slip for the year on year data back to +2.8% (from +2.9% last month). The unemployment rate is expected to drop slightly to +4.0% (from +4.1%) which means that the U6 Underemployment data will take on added interest given that the U6 has risen for the past two months to 8.2% last month. The participation rate has now been at 6.7% for the past four months." Richard Perry

"Although hiring is expected to have picked up slightly in February and employment to have declined to 4% from 4.1%, both of these figures will be ignored. Investors are mainly concerned about the average hourly earnings figure. After increasing at the fastest pace in almost a decade, wage growth is expected to fall 0.4% YoY. If this materializes, then previous inflation fears which caused the steep drop in equities beginning of February, arelikely to ease." Hussein Al Sayed

"The unemployment rate is expected to decline to a cycle low of 4.0%. After last month’s rise & market reaction, wage growth data (expected at 0.2% M/M and 2.8% Y/Y from 2.9%) will take center stage. Of late, the rise in US yields took a breather. However, another positive surprise, especially from the wage data, will rekindle market expectations that the pace of Fed rate hikes might accelerate later this year." KBC Market Research Desk

"Although the ADP report does not directly correlate with Non-Farm Payrolls, however, it suggests that a report from the US Department of Labor on employment will also be strong.
It is expected that the number of jobs outside agriculture increased in February by 204,000 (the previous NFP was +200,000). This is significantly higher than the average for six months of 166,000. Unemployment is expected to decline in February by 0.1% to 4.0%, which is the lowest value for 17 years. Moreover, many economists expect that during 2018, unemployment in the US may fall below 4%. This has not been observed since 2000.
The strong US labor market is becoming the most important driver for the growth of the US economy.
Low unemployment indicates the growth in demand for labor resources for US companies, which, in turn, will contribute to the growth of salaries for employees. And this will lead to an increase in consumer spending, GDP and inflation, which the Fed is so eager for." Roman Sadowski

"Other pre-NFP indicators include the ISM manufacturing PMI employment component, which showed expanding job growth at 59.8 in February, substantially faster than January’s 54.2 reading. The services sector (ISM non-manufacturing PMI), however, showed substantially slower job growth at 55.0 in February against January’s 61.6 reading. Finally, February’s weekly jobless claims have mostly been better (lower) than expected or in-line with expectations, and have remained near historic lows. The exception is the most recent reading released on Thursday for the end of February, which showed a moderately higher-than-expected reading." James Chen

"If job growth exceeds 150K, the unemployment rate improves and average hourly earnings growth slows no more than 0.2%, EUR/USD should fall to 1.2250. If earnings growth stabilizes at 0.3% or improves, EUR/USD will hit 1.22. However if job growth falls short of expectations, the unemployment rate fails to improve and/or wage growth slows to 0.1%, the best pair to sell would be USD/JPY for a move back to 105.50. In that scenario, EUR/USD could bounce back up to 1.2375." Kathy Lien