Daily Management Review

Strong February U.S. Job Growth Reported; Wages Likely To Rebound


Strong February U.S. Job Growth Reported; Wages Likely To Rebound
It is expected that the Federal Reserve will be given the green light to raise interest rates next week despite slowing economic growth as U.S. employers are likely maintained a brisk pace of hiring in February and boosted wages for workers.
According to a Reuters survey of economists Nonfarm payrolls probably increased by 190,000 jobs last month.
The U.S. central bank would likely hike interest rates at its March 14-15 policy meeting,Fed Chair Janet Yellen signaled last week.
To keep up with growth in the working-age population, the economy needs to create roughly 100,000 jobs per month.
"February employment appears to be the final hurdle for the Fed to raise interest rates in March, and it's likely to be easily jumped," said Ryan Sweet, senior economist at Moody’s Analytics in Westchester, Pennsylvania.
private sector employers hired 298,000 workers in February, the largest amount in a year and hence payrolls could, however, surprise on the upside after the ADP National Employment Report showed on Wednesday.
With average hourly earnings seen rising 0.3 percent in February after January's paltry 0.1 percent gain, last month's brisk clip of hiring is expected to have been accompanied by an acceleration in wage growth. And hence from 2.5 percent in January, that would lift the year-on-year increase in wages to 2.8 percent.
Even as more people likely entered the labor market, encouraged by the hiring spree, the unemployment rate is seen declining 1/10th of a percentage point to 4.7 percent in February.
As companies are forced to raise compensation to retain employees and attract skilled workers, wage growth could speed up with the labor market near full employment.
To lift inflation to the Fed's 2 percent target, a growth rate of between 3 and 3.5 percent in wages is needed according to economists. But in part as commodity prices rise, inflation is already firming.
Some economists have been left expecting that the Fed could increase interest rates much faster than is currently anticipated by financial markets with rising inflation, together with a tighter labor, stock market boom and strengthening global economy.
"The Fed might find itself behind the curve and having to catch up," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The U.S. central bank has forecast three rate increases for 2017 and lifted its benchmark overnight rate in December.
In a recovery that predates Donald Trump's presidency, job growth has averaged 186,000 per month since January 2010. However there has been no surge in both business and consumer spending even while Trump's election victory last November sparked a stock market rally and jumps in consumer and business confidence.
The economy slowed further early in the first quarter after growing at a 1.9 percent annualized rate in the final three months of 2016 as suggested by data ranging from trade to consumer and business spending. Gross domestic product growing at a 1.2 percent rate this quarter is being forecast by the Atlanta Fed.
"It's really surprising that the U.S. is still producing this many jobs because we are quite close to full employment," said Thomas Costerg, a senior U.S. economist at Standard Chartered Bank in New York. "It's way too early to see the impact of the new administration's policies."

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