After last month’s surprising, broad-based rise in a variety of wage measures, traders were on the edge of their seats ahead of Friday's U.S. jobs report. After all, we’ve seen countless “false dawns” heralding the end of the persistent slack in the labor market over the last nine years, but none have proven to be more than a one- or two-month anomaly.
As it turns out, Friday's report suggests that slack remains the dominant feature of the U.S. labor market. On a headline basis, the U.S. economy created a staggering 313k new jobs in February, well above consensus expectations of 205k net new jobs. Adding to the strong headline figure, the January and December job creation figures were both revised higher, bringing the 3-month average up to 242k positions.
If workers were finally getting the upper hand in salary negotiations, we would expect such a strong report to be accompanied by a drop in the unemployment rate and a significant rise in average hourly earnings. We saw neither. Despite the strong growth in the labor market, the unemployment rate held steady at 4.1%, primarily due to the largest rise in the labor force since 1983. Meanwhile, average hourly earnings disappointed, showing only a 0.1% m/m increase (2.6% y/y), while January’s surprisingly strong wage growth was also revised down a tick.
Overall, Friday’s jobs report signals more of the same for the U.S. job market: the absolute quantity of jobs continues to grow for going on seven-and-a-half years, but the quality of those jobs has not seen a commensurate improvement. The lack of sustained growth in wages lessens the pressure on the Federal Reserve to raise interest rates four times this year (though a rate hike in two weeks’ time is nearly a given at this point). According to the CME’s FedWatch tool, Fed Funds futures traders are ambivalent about the report, with little net change to the market-implied odds of at least three interest-rate increases this year (65%).
Market Reaction
As you might expect in the wake of a mixed report, the U.S. dollar has both rallied and dropped, but is currently trading generally unchanged against its major rivals. Meanwhile, the report is a “goldilocks” reading for U.S. corporations, so it’s not surprising to see U.S. stock futures are trading higher by about 0.5% as of writing. Rates on the benchmark 10-year bond yield are trading up by four bps to 2.90%.