• NFP was much stronger than expected at 678K in February versus 400K forecasts. 
  • Measures of labour market slack were also generally strong, though wage growth metrics were much weaker than forecast.
  • The US Dollar has nonetheless been striding higher in the wake of the release. 

Nonfarm Payrolls (NFP) rose by 678K in February, well above the median economist forecast for a 400K rise, data published by the US Bureau of Labor Statistics showed on Friday. January's NFP number also saw a small upwards revision to 481K from 467K. The much larger-than-expected headline beat was driven by a 654K rise in Private Nonfarm Payrolls versus the expected 378K gain, with January's number also revised slightly higher to 448K from 444K. Manufacturing Payrolls rose 36K on the month, well above the expected 20K gain and much higher than January's 16K gain that had been revised up from 13K. 

Labour data was generally stronger than expected. The Unemployment Rate fell to 3.8% from 4.0%, more than the expected drop to 3.9%. While the U6 Underemployment Rate actually rose to 7.2% from 7.1% in January, the Participation Rate also rose to 62.3% from 62.2%, leaving it just 1.1% below February 2020 levels. 

Whilst the headline and labour market slack numbers pertaining to job creation were strong, the inflation-concerned Fed will likely be relieved at the latest wage growth metrics. Average Hourly Earnings (AHE) rose at a pace of 5.1% YoY in February, elevated but well below expectations for a rise to 5.8% from 5.5% in January, with last month's AHE reading revised lower from 5.7%. MoM, AHE came in at 0.0% versus median economist forecasts for 0.5%, a deceleration from January's 0.6% MoM reading, which had been revised lower from 0.7%. 

Market Reaction

Weak wage growth metrics have been shrugged off by the US dollar bulls, who have regained control in the wake of the much stronger-than-forecast headline NFP print, combined with decent labour market slack metrics. The Dollar Index is rising towards the 98.80s from around 97.60 prior to the data and is at session highs, with EUR/USD on the verge of collapsing below 1.0900 and GBP/USD now on under 1.3250. USD/JPY has been choppier and less reaction and stayed in the 115.30-115.45 area. 

In terms of the reaction in other asset classes, S&P 500 futures saw a kneejerk spike higher, perhaps amid an interpretation that softer wage growth metrics mean less pressure on the Fed to tighten policy as quickly this year (though this would be at odds with the FX market reaction). E-mini futures jumped into the 4430-4440 region from pre-data levels in the 4420s. Bonds were choppy and saw a two-way reaction, with the US 10-year yield swinging between post-data lows at 1.76% and highs at 1.81%, though now seem to be pushing back slightly lower again, perhaps on the soft wage growth figures. 

Spot gold (XAU/USD) isn't much moved and continues to trade in the mid-$1940s amid continued struggles when rallying towards $1950. 

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