U.S. payroll employment up solidly in February – RBC Economics

Nathan Janzen, Senior Economist at RBC Economics, notes that the US employment rose 235k following a revised 238k (was 227k) increase in January and private-sector jobs rose 227k (up from 221k in January) with government jobs up 8k following a 17k January gain while the unemployment rate declined to 4.7% from 4.8% in January

Key Quotes

“The February employment gain was boosted by a 95k surge in private sector goods-producing jobs (the largest monthly gain since March 2000) with construction employment up 58k (to build on a 40k jump in January) and manufacturing sector headcount up 28k to mark a third consecutive solid monthly gain.  Private service-sector job growth slowed to 132k from 167k in January.   Employment in the retail sector declined 26k after a 40k jump in January.” 

“The dip in the unemployment rate (calculated from the separate household survey) occurred despite a tick higher in the participation rate to 63.0% from 62.9% in January.”

“Hours worked inched up 0.2% in February and 1.4% from a year ago.  Hourly wages also rose 0.2% from January and the year-over-year rate ticked up to 2.8% to retrace most of a dip to 2.6% in January from (a cycle high) 2.9% in December.”

“Our Take:

Given comments from Fed officials, including Chair Yellen, in recent weeks, it would likely have taken a significant downside surprise to derail market expectations that were already pricing in about 90% odds of a 25 basis point hike to the fed funds target range following next week’s FOMC meeting before the release of today’s numbers. 

Although the earlier-reported 299k surge in private employment in the ADP report earlier this week may have boosted some expectations for today’s job growth numbers to unrealistic levels, solid employment growth (well-above the underlying ‘trend’ rate), a dip in the unemployment rate, and a tick higher in wage growth should all provide reassurance that labour markets continue to tighten. 

We continue to expect a 25 basis point rate hike from the Fed next Wednesday.  With an increase in rates, barring some unexpected shock, appearing very likely, attention is likely to shift to the expected pace of future hikes (Previous Fed projections suggested three hikes were felt to be appropriate this year) with a stronger economy arguing higher rates are needed but with considerable uncertainty remaining in the outlook, particularly around the future of U.S. government policy.”