Strong Wage Gains Soften Drop in Non-Farm Employment Change

It’s not often that an economy sees a drop in non-farm payrolls from 304,000 to 20,000. And when this is combined with a slightly higher drift in jobless claims, one can conclude that the momentum in the jobs market is probably slowing.
James Hyerczyk
U.S. Economy

Whip-saw was the theme in the financial markets on Friday following the release of a Labor Department Non-Farm Payrolls report which showed the economy added far fewer jobs than expected, but wages moved higher in the month of February.

The major U.S. stock indexes fell to their lows of the session after the news was released, but managed to claw back most of those losses. Most of the earlier losses were blamed on weaker-than-expected trade balance data out of China.

Benchmark 10-year Treasury note yields also hit a session low following the report’s release, but gyrated the rest of the session above those lows. The dollar finished lower against a basket of currencies, but most of those losses were attributed to a rally in the oversold Euro.

Although the headline writers and analysts with a political agenda wanted you to believe the numbers were bad, the price action didn’t really reflect this assessment. There was no crash in the stock market, there was no massive flight to safe-haven assets, just a lot of position-squaring by markets that had hit temporarily overbought or oversold levels.

One suspect report doesn’t make a trend and neither do the headlines that don’t seem to be updated as frequently during the trading session as they should be. In my opinion, the jobs report continued to reflect the skewed data from the government shutdown earlier in the year. Furthermore, I think you have to look at the monthly average of the non-farm numbers before you can declare the job market dead.

U.S. Non-Farm Payrolls Report

The raw data shows that nonfarm payrolls increased by just 20,000. Economists were looking for an increase of 180,000.  But can you trust this number, given the volatility between the guesses and the actual the past two months?

Remember that the February report showed January’s non-farm payrolls increased 304.000, the most in almost a year, after a downwardly revised 222,000 gain the prior month. The median estimate by economists called for an increase of 165,000, following an initially reported 312,000 in December.

You can see that the numbers have been volatile so far this year so I’m not going to put much weight on the non-farm number until I see the March report and since the Fed meets later in March, I don’t think they’re going to be rattled too much until they see a trend develop.

The report also showed the unemployment rate fell to 3.8 percent from 3.9 percent. Average hourly earnings increased by 3.4 percent on a year-over-year basis, the best economic recovery that began nearly 10 years ago. Economists were looking for an increase of 3.2 percent. Average hourly earnings increased 11 cents to $27.66, a 0.4 percent increase from the prior month.

What Does It Mean?

It’s not often that an economy sees a drop in non-farm payrolls from 304,000 to 20,000. And when this is combined with a slightly higher drift in jobless claims, one can conclude that the momentum in the jobs market is probably slowing. However, keep in mind that the U.S. has a very tight labor market and vacancies are difficult to fill, furthermore, the numbers show it’s been difficult to draw people back into the labor market.

The price action late in the session in the financial markets on Friday suggests the reaction to the jobs report may have been a “one and done”, meaning it’s not likely to carry over into next week, with traders continuing to keep an eye on a potential U.S.-China trade deal.

Furthermore, the strong gain in wages is a positive, which I’m sure Fed policymakers noted.

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