Saturday, March 8, 2014

Good job gains in the US, wage growth higher

After a number of months of soft job data the better than expected gain of +175k in February supports the story that, aside from the weather, the US economy is continuing to expand at a reasonable clip.  Furthermore continued gains in wages alongside soft inflation tells us real incomes are improving which will support consumption growth in the period ahead.

Jobs growth was broad-based over the month, although we saw a third consecutive month of weakness in federal payrolls.  The unemployment rate ticked up to 6.7% over the month as the labour force grew more than employment in the household survey.

The impact of the weather was still evident in the data.  The number of workers who normally work full-time but were forced to work part-time rose sharply to 6.9 million in February, around five times greater than a typical February.  Furthermore the average work week fell to its lowest level since the start of 2011 resulting in a fall in aggregate hours worked.  That supports the case for a soft GDP reading in Q1 2014.  I’m still expecting a number around 1.0-1.5% at an annual rate.

The growth in average hourly earnings rose to 2.2% in the year to February.  The rise in wages along with jobs growth and low inflation supports our view that rising real incomes will contribute to stronger consumer spending and real final sales over the course of the year.  But at the same time remember wages (or more precisely unit labour costs) will be where signs of inflation will emerge first.  That’s not yet, but it’s just a question of time…