Feb Job Growth Strong, Wage Growth Pokey

After a slight delay, the Labor Department reported that the economy added 295,000 jobs in February, ahead of estimates for 230,000 and better than the average monthly gain of 266,000 over the past year. January’s result was revised down by 18,000 but December’s strong 329,000 was unchanged. Even with the downward revision, payrolls are still rising at a three-month average of 288,000 a month. There is no doubt that job creation has kicked into a higher gear over the past year. A total of 3.3 million jobs were added, the highest year-over-year gain since the end of the 1990s. Meanwhile, the unemployment rate slid to 5.5 percent from 5.7 percent, due to a 178,000 decline in the labor force. The BLS noted that the labor force participation rate, at 62.8 percent, “has remained within a narrow range of 62.7 to 62.9 percent since April 2014.” Economists have attributed at least half of the more than three percent decline in the participation from pre-recession levels to the demographic trend of the retiring baby-boom generation. The rest of the drop reflects a deep jobs recession, which prompts disgruntled workers to give up their search. In her recent Congressional testimony Fed Chair Janet Yellen said that the low participation rate continues to suggest, “some cyclical weakness persists.”

The problem for Yellen is that the unemployment rate is now at the top end of the Fed’s 5.2 to 5.5 percent estimate of the natural rate. As a matter of policy, when the rate falls into the “natural” range, the central bank would start to increase short-term interest rates. But Yellen has also noted that wage growth would be a factor in the Fed’s decision on lift-off of rates.

Despite healthy job creation, average hourly earnings advanced by just 2 percent in February from a year earlier, stubbornly slow progress. Wages grew at a better than 3 percent rate annually during the prior recovery that ended in 2007. Economist Joel Naroff believes that wage growth is a lagging indicator “and with major employers announcing pay increases, it is only a matter of time before wages, however we measure them, increase faster.”

The long-awaited jump in wages could be coming sooner rather than later, according to the Financial Times. The fact that younger employees are seeing better growth; and lower wage earners are seeing a moderate improvement in incomes, “could be a harbinger of stronger earnings across the economy.” Analysts at Capital Economics say if the Fed waits until wage growth rises at a more normal pace, it risks being “well behind the curve.”

Meanwhile, investors threw a little tantrum on Friday, after the stronger than expected jobs report got some thinking that the Fed would be forced to raise rates at the June meeting. Stock indexes were down 1 - 1.5 percent and bond prices slumped. At some point, these knee-jerk reactions will stop and everyone will realize that more normal interest rate policy would indicate a healthier economy.

We'll hear more about the potential timing of rate increases at the next Federal Reserve policy meeting on March 17 and 18. One clue that the central bankers might increase rates as soon as June would be the removal a key phrase in the accompanying statement. If the Fed is no longer "patient" as to when it will consider hiking rates, we could see a June lift-off. BUCKLE UP!

MARKETS: Last week there was little fanfare over the NASDAQ reclaiming 5000 after 15 long years. Perhaps investors might feel a bit better when they reflect on the 6-year anniversary of the bear market lows, which occurred on March 9, 2009 (see stats below).

• DJIA: 17,856, down 1.5% on week, up 0.2% YTD
• S&P 500: 2071, down 1.6% on week, up 0.6% YTD
• NASDAQ: 4927 down 0.7% on week, up 4% YTD
• Russell 2000: 1217, down 1.3% on week, up 1% YTD
• 10-Year Treasury yield: 2.24% (from 2% a week ago)
• April Crude Oil: $49.62, down 0.3% on week
• April Gold: $1,164.30, down 4% on week
• AAA Nat'l avg for gallon of regular Gas: $2.46 (from $2.40 week ago, $3.45 a year ago)

THE WEEK AHEAD:

Mon 3/9: 6th Anniversary of Bear Market Lows

Here’s where we stood 6 years ago--since then, the broad S&P 500 has gained 150 percent, on an inflation-adjusted basis (dividends not included).

• Dow: 6547 – lowest level since April 15, 1997
• S&P 500: 676 – lowest level since Sept 12, 1996
• NASDAQ: 1268 – lowest level since Oct 9, 2002

Tues 3/10:

9:00 NFIB Small Business Optimism

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 3/11:

Thurs 3/12:

8:30 Retail Sales

8:30 Import/Export Prices

10:00 Business Inventories

Fri 3/13:

8:30 PPI

10:00 Consumer Sentiment