Unemployment also improved showing a drop to 7.7% from 7.9%. However, it was partly due to a decline in the labour force mitigating part of the strength.
A decent turn in wage growth over the past few months is giving a strong impetus to income growth. In combination with higher equity and house prices, this means underlying fundamentals for consumers are improving fast.
The stronger fundamental picture means the markets will more be able to look through any short-term softness in consumption coming from the tax hike and higher gasoline prices.
Details
Non-farm payrolls
rose 236k in February, clearly higher than consensus of 165k. Net revisions were slightly negative, though at -15k. The three-month moving average actually declined to 191k from 195k in January. Other labour market indicators (especially ISM employment) point to a pickup in the trend of job growth in coming months.
The gains were broadly based, with a rise of 179k in the service sector, 14k in manufacturing and 48k in construction. The rise in construction was the highest since March 2007, yet another sign that the housing market is becoming a significant tailwind for the labour market.
The unemployment rate surprised on the downside, falling to 7.7%, from 7.9%. This mirrors less strong details, though, as it was due partly to a decline in the labour force of 130k. Household employment rose 170k after three sluggish months, so the picture is not as convincing as the unemployment rate would suggest.
Weekly hours surprised on the upside, rising to 34.5 (consensus 34.4) from 34.4 the previous month. Wage growth rose in line with expectations at 0.2% m/m but was revised slightly lower for January, down to 0.1% m/m from 0.2% m/m. However, wage growth has really turned a corner lately, as the six-month annualised growth rate has risen to 2.8%, up from 1.0% just five months ago. This means a major drag on income growth is also fading from this side. The payrolls income proxy rose again to 6.5% (3M AR) from 6.3% the month before. This means the underlying fundamentals for consumers are clearly improving as higher house and equity prices are also increasing wealth for households.
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