U.S. payrolls surged ahead in February, up 313k against expectations for a 200k increase. Gains were largely in the private-sector hiring (+287k), and upward revisions to the prior two months added another 54k jobs.
The unemployment rate remained unchanged at 4.1% as increased numbers of new workers entered the labor force. The labor force participation rate rose to 63.0% in February, re-attaining it’s post-recession peak. Overall participation in the labor force has been fairly steady since early 2016, but that hides an encouraging upward trend for core-age workers (25-54 yrs.), which is being offset by the large cohort of baby boomers entering retirement.
All eyes were on wage growth, which rose a moderate 0.2% m/m in February. That left average hourly earnings up 2.6%, a slight deceleration from 2.8% in January. Still, wages have advanced at a 3% annualized pace over the past three months.
Payroll gains were broad based, with hiring in both good and services sector accelerating. In the lead were construction (+61k), retail trade (+50k), professional and business services (+50k), manufacturing (+31k), financial activities (+28k) mining(+9k) and health care (+19k).
Key Implications
The job market has certainly got off to a roaring start in 2018. Hiring has picked up in recent months, driven by an acceleration in goods sector hiring, and the mining and manufacturing sectors in particular. Still, the unemployment rate has remained steady at 4.1%, as growth in the labor force has also gained speed.
While some might be a bit disappointed in the step back in wage growth, the trend over the past few months has been positive. And, with hiring growth like this, wage pressures are bound to accelerate further over the coming months, which should continue to draw people off the sidelines and into the workforce. On top of tax cuts, recently announced government spending increases will add further fuel to this fiery labor market.
There is little debate that the Fed will hike in March. Our latest forecast calls for three hikes in total over 2018, but if this momentum continues, there is certainly an upside risk to this view.
