NFP Analysis: Disappointing wages unlikely to prevent Powell from a dot-plot upgrade

  • The US gained 313,000 jobs but wages are up by only 2.6%.
  • The market reaction was choppy and mixed.
  • There is still a lot of slack in the economy, but Powell will likely push through with signaling four hikes in 2018.

The US gained no less than 313,000 jobs in February, over 50% above expectations and the highest jobs gain since July 2016. In addition, revision added 54,000 positions. 

On the other hand, wages rose by only 0.1% MoM and 2.6% YoY, much worse than 0.2% and 2.8% respectively.

In theory, wages are more important than job gains at this point in the economic cycle and the US Dollar is indeed slightly weaker. However, the falls are small and trading is choppy.

What is going on? While wages are very important, the gain in jobs is huge. When coupled with a rise in the working week to 34.5 hours, better than expected, things do not look that bad, at least for stocks. More Americans are working longer hours but at lower pay.

And even though wages still have the upper hand in determining the reaction of the US Dollar, Fed Chair Jerome Powell is likely to push forward with an upgrade of the dot-plot. Other factors such as fiscal spending, tax cuts and also inflation are still ticking higher. In addition, Powell still sees four hikes as a gradual pace.

So, an upgrade of the dot-plot from three to four hikes is still on the cards. 

This NFP report is unlikely to deter him. That is, until we hear from the inflation report on Tuesday, March 13th. A disappointment there would already make it two in a row, and that may complicate matters for Powell in his first meeting as Fed Chair.

 

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