The February jobs report is here.
On Friday morning at 8:30 a.m. ET, the Bureau of Labor Statistics will release its employment report for the second month of 2018. And this report should show continued strength in the U.S. labor market.
According to Wall Street estimates compiled by Bloomberg, economists expect nonfarm payrolls grew by 205,000 in February while the unemployment rate likely fell to 4%.
Average hourly earnings will also be in focus, with expectations that wages rose 0.2% over the prior month and 2.8% over the prior year. In January, wages rose 2.9% over the prior year, the most since the financial crisis and a development that caused a spike in Treasury yields which some cited as the beginning of the stock market sell-off which roiled markets in early February.
Friday’s report comes less than two weeks before the Federal Reserve’s next monetary policy announcement, set for March 21 and at which the central bank is expected to raise interest rates by 0.25%.
Other economic data expected out Friday includes the final reading on wholesale inventories in January, though this should not be a market mover. Markets will also still be sorting through the impacts of tariffs ordered by President Donald Trump on Thursday, though the market’s reaction indicates that while there was initial concern that action on trade from the Trump administration could spark a larger trade war, that fear has been allayed somewhat.
Are too many jobs a bad thing?
On Friday, the U.S. economy is expected to show that more than 200,000 jobs were created in February. If this forecast is met or exceeded, it would mark the 20th time since the beginning of 2015 this threshold was hit.
At this point in the economic cycle — when over 10 million private-sector jobs have been created since the financial crisis and the unemployment rate sits at 4.1% — most economists, however, would expect to see job gains slow and wages begin to rise.
And while wages have been rising modestly, this increase is still a disappointment to many economists and coming alongside continued strong gains in overall jobs created, a sign that more labor market slack exists than many measures of the labor market are capturing. And this dynamic is starting to trouble some economists.
“In past years, employment reports that included strong rates of hiring and modest wage inflation were viewed as unambiguously positive,” said Michael Gapen, an economist at Barclays.
“They supported household income and, in turn, consumer spending, while not generating sufficient wage and inflationary pressures to bring on monetary tightening. Looking ahead, we will view solid growth in employment less favorably, not so much because we believe it will generate excessive wage and inflationary pressures, but because it is a signal to us that productivity growth remains subdued and the supply side of the US economy is not improving.”
In other words, the more workers that U.S. employers hire the more they are signaling that worker productivity, and thus worker wages, are not improving or likely to improve.
An argument in favor of wage increases in the months ahead has not only been the low level of unemployment and anecdotal evidence from employers that good workers are hard to come by, but a belief that increasing productivity as a result of a diminished labor pool would lead to more wage growth.
But with hiring remaining strong and productivity still middling, the supply side of the economy Gapen refers to — that is, the folks that make stuff you buy and do things you pay for — does not appear to be accelerating in the way many would expect at this point in the economic cycle.
“If solid rates of employment growth are needed to keep the US economy growing above trend, then our take-away will be that productivity remains subdued, potential growth remains low, the unemployment rate is likely to trend lower, and the bias in Federal Reserve policy will be for continued normalization,” Gapen adds.
“We are not implying that we expected the policies in the Tax Cut and Jobs Act to lead to an immediate acceleration in productivity growth, but we do believe the supply side of the economy needs to pick up in relatively short order given the substantial fiscal stimulus in the pipeline.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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