NFP report backs Fed’s 50 basis point hike in March
- The NFP report showed that 311,000 jobs were created in the US economy in February, again exceeding expectations.
- Wage growth fell short of expectations, rising only 0.2%.
- Markets are clinging to hopes of lower service inflation.
- Fed hawks are unlikely to give up and are likely to support a 50 basis point hike on March 22.
Is Silicon Valley getting closer to Main Street? Technicians in California have always earned more than others, and perhaps because of their deprivation, average wage growth is declining. Concerns about layoffs in the tech sector and trouble at Silicon Valley Bank (SVB) have yet to reach the broader economy, but a modest 0.2% increase in average hourly pay is taking its toll. The US dollar is falling.
After a huge jump of 517,000 jobs in January, the NFP (Non-Farm Payroll) report for February is expected to show a lower number this time around. However, the US economy added 311,000 jobs, and last year’s figure was only slightly reduced to 504,000.
Hit by the SVB story and hawkish comments by Federal Reserve Chairman Jerome Powell, stocks are trying to hold on to weak wages to rally. Apart from a small monthly increase of 0.2%, wages in February grew by only 4.6%, that is, a little less than 4.7%.
Another bright spot for the stock is a shorter working week of 34.5 hours versus an expected 34.7. While more workers were added, they spent slightly less time at work. Another good news was the increase in the participation rate to 62.5%.
The hot job market is attracting people who have been on the sidelines. Over time, increased participation should lead to weaker bargaining power, lower wage growth and moderate inflation.
All this is a reason to be happy for companies that would pay their employees less. It also means less pressure on the Fed to raise borrowing costs. The central bank is targeting prices for “basic non-housing services” — closely related to wages.
However, I would like to point out that there is another important data point – the Consumer Price Index (CPI) report for February, which will be released on Tuesday, March 14th. This inflation figure is likely to be the final verdict.
The current market holiday and the fall in the US dollar is likely to last until the weekend. But after a party there is always a hangover. Stocks could decline and the dollar bounce back ahead of Tuesday’s critical inflation report. A report showing a slowdown in wage growth does not mean a decrease in inflation.
Yochai Elam, FXStreet
Yochai holds a BSc in Computer Science from Ben Gurion University in Beer Sheva, Israel. He has been in the Forex industry since 2008 when he founded Forex Crunch, a blog he started in his spare time that has grown into a full-fledged currency website. He specializes in fundamental and political analysis, as well as technical analysis and educational content. His activities on the site also included managing internal and external contributors, marketing, hosting webinars, public speaking, and podcasts. He has collaborated with other publications such as FXStreet, Forex Factory, Business Insider, DailyFX, ForexTV, TradersLog and many more. He sometimes went into hiding, using his programming skills after working for several start-ups in Israel. Yohai joined FXStreet in 2018, sharing his experience with other companies.
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