Jobs-Day Guide: Wages Expected to Warm Up as Payroll Gains Cool
Non-farm payrolls likely increased by about 180,000, a still-solid pace though down from 304,000 in the prior month.
(Bloomberg) -- America’s jobs engine may have cooled a bit last month, but wages probably heated up as U.S. companies struggled to fill positions in a tightening market.
Nonfarm payrolls likely increased by about 180,000, a still-solid pace though down from 304,000 in the prior month, while the jobless rate fell a tenth of a point to 3.9 percent -- near the lowest rate since 1969 -- according to economists surveyed by Bloomberg ahead of Friday’s Labor Department report.
Average hourly earnings may have jumped 0.3 percent from the prior month to result in a 3.3 percent annual gain, matching the high since the last recession ended in 2009.
Strong hiring in February might ease growing worries that the expansion -- which is poised to turn 10 years old on July 1 and become the longest in U.S. history -- is running low on steam amid slowing global growth, a trade battle with China, easing fiscal stimulus and higher interest rates.
“We will continue to see wages strengthen as the availability of labor gets tighter and companies are finally realizing they need to be paying up for that,” said Sarah House, senior economist at Wells Fargo & Co.
What Bloomberg’s Economists Say
“The health of the labor market will largely determine the economy’s resilience to a short-term soft patch.... Despite a temporary wobble in economic growth, Bloomberg Economics projects a solid February increase in hiring, further evidence of mounting wage pressures and a return to the downward trend in the unemployment rate.”
-- Carl Riccadonna, Yelena Shulyatyeva and Tim Mahedy, U.S. economists
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Here are some key things to watch for:
Fed Impact
One sign of tightness is accelerating pay gains among job switchers, according to Brett Ryan, an economist with Deutsche Bank AG. According to the Federal Reserve Bank of Atlanta’s wage tracker, workers who switched employers earned 4.6 percent more in January than a year earlier, compared to 3.4 percent for those who stayed, based on three-month averages.
The employment report’s impact on Fed policy may be muted because the central bank has said it will be patient in assessing the outlook amid increasing headwinds. Markets aren’t pricing in any hikes this year, based on Fed funds futures.
Fed Chairman Jerome Powell told Congress last week the central bank was pleased to see wages picking up in the past year, “particularly for people at the lower end of the labor force,’’ amid a tightening market. “Wages have moved up,’’ Powell said. “We welcome that. We don’t find it troubling from an inflation standpoint at this point.”
Payroll Quirks
The expected easing in payroll gains after a monthly average of 223,000 last year reflects a likely moderation in economic growth from last year’s 3.1 percent pace.
Recent history gives one reason to be optimistic about February payrolls, though. The initial February report has topped forecasts for each of the past five years, as Deutsche Bank notes, with an average beat of 55,000 jobs including 108,000 in 2018. That suggests that the Labor Department’s seasonal adjustment may be giving a small boost to the month.
There are a couple of industries that could be softer, though. Manufacturing could ease following a moderate Institute for Supply Management report, and retail jobs may be weakening with announcements of store closures, said John Herrmann of MUFG Securities.
In addition, January’s unexpectedly strong gain of 304,000 jobs could be revised downward, possibly by 65,000 or more, given a relatively low survey response rate that suggests job cuts were missed in the initial run, Herrmann said.
Market Reaction
The main risk to markets from the report comes from whether wage growth sparks fears of a pickup in inflation that could alter views on the Fed’s rate-hike plans.
Should pay gains surge, Treasury yields may break out of the tight range they’ve traced in the past month, while equities would likely falter. A tepid reading may ease the dollar’s recent strength.
Participation Deflation?
Rising labor-market participation as more people looked for jobs helped push the unemployment rate up to a seven-month high of 4 percent in January, but that trend may have topped out in part because of an aging population, with the continuing retirement of baby boomers. While the median projection is for an unemployment rate of 3.9 percent in February, just one economist expects an increase and estimates range as low as 3.7 percent.
“There have been increases in the participation rate that might revert to mean and which could drive the unemployment rate lower again,” said James Ong, senior macro strategist at Invesco Ltd. “Demographic research suggests that it’s going to go back down.”
--With assistance from Benjamin Purvis, Liz Capo McCormick and Chris Middleton.
To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net
To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns
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