Labor is in heavy demand but what nascent indication of wage inflation that had been appearing may now have vanished. Does this mean that 4.1 percent unemployment, a rate just recently thought to be far in excess of full employment, is not full employment at all? If so, then businesses can continue to find candidates to meet their rising order books and with this, corporate profits can climb without being syphoned off by increasing wages. If not, however, if candidates are in fact about to grow scare and if employers begin to raise their offers, wages could begin to move higher and fast.
Nonfarm payrolls rose an outsized 313,00 in February to beat consensus estimates by a wide margin. The month’s gain is one of the very largest of the post-2009 expansion in strength underscored by upward revisions to prior months totaling 54,000. Demand for professional and business services was especially strong in February with the temporary help subcomponent spiking 27,000 in a tangible indication that employers may now be scrambling to fill positions as quickly as they can and however they can.
Retail also showed strength, up 50,000 in February, as did government with a payroll gain of 26,000. The gains failed to lower the unemployment rate as discouraged workers came back in force and were quickly absorbed, lifting the labor force participation rate by a sharp 3 tenths to 67.0 percent which matches its best reading of the last four years.
Despite all this strength, the monthly increase in average hourly earnings actually came in below expectations at only 0.15 percent with average monthly gain over in hourly earnings at 0.22 percent. February’s result, judging by Friday’s stock-market reaction, seems to have made a distant memory of the uncomfortable gains of 0.38 percent in December and 0.45 percent in September or even the 0.26 percent result of January.
But it wasn’t the monthly gain that caused all the fuss back in January it was the year-on-year rate, at a 2.9 percent initial reading which triggered the massive wobble in the stock market. In February this rate came in very soft, 3 tenths below the Street’s consensus at 2.6 percent with January revised 1 tenth lower to a less intense 2.8 percent. The graph below compares Average Hourly Earnings, YoY percentage change against the Federal Reserve’s central inflation target, the core PCE price index which has been struggling back toward the Fed’s 2 percent goal. Indications of what to expect for core PCE in February will be part of the coming week’s economic data specifically the core CPI price index on Tuesday.