Clarity on Jobs and Wages
March 9, 2018
Wow, this morning’s jobs report was an absolute blowout. A real monster. February added 313,000 new jobs and the January figure was revised up from 200,000 to 239,999. December jobs were also adjusted up to 175,000 from 160,000.
The unemployment rate remained steady at 4.1%, which seems quite eschewed since the number has remained the same for five months in a row now.
I had expected to see a big spike in wages after we got data from the ADP report on Wednesday that unit labor costs climbed 2.5% against the consensus at 2%. However, it turns out that wage growth is still anemic as it only increased 0.1% month-over-month and 2.6% year-over-year. Average hourly earnings increased $0.04 to $26.75.
Labor force participation rose 0.3% to 63%, but that’s only up slightly over last year. And the average work week increased slightly to 34.5 hours from 24.4 hours in January.
Here’s a breakdown of jobs growth by sector:
Coming into the report, I was very interested to see if the market would really view good news as good news, or if bad news would actually be good news in the sense that a strong number could increase wage inflation and the possibility of an additional interest rate hike. I was rooting a strong number, and the results were great.
Minutes before this morning’s non-farm payroll report was released, Dow futures went from up 35 points to down 50. But immediately after the numbers came out they shot up 220 points. The index opened just above 25,000, up over 100 points from yesterday’s close. Less than an hour later, the Dow moved above 25,100, breaking out of the previous three-day range of 24,500-25,000 and bringing 25,710 into play.
The equity markets like the so-called “Goldilocks” numbers, as job growth is strong while wage growth remains subdued. This helps keep inflation in check for the moment. Interestingly, the 10-year Treasury yield still moved higher from 2.87% to 2.9%.
I know there have been all kinds of worries in the market from bond yields to tariffs, but the fact of the matter is that investors need clarity on jobs in general and wages in particular as these are foundational elements for the long-term value proposition of investing in the stock market.
The economy keeps rocking, earnings are great and even if volatility is higher, we continue to make money. This is a great environment to be in and I’m excited for all the opportunities coming our way.