The February 2018 jobs report was another “Goldilocks moment” for the stock market. The economy added 313,000 jobs, surpassing the 200,000 new jobs economists had expected:
US payrolls climbed by the most since July 2016 last month, even as wage growth cooled, the final report ahead of the Federal Reserve’s monetary policy meeting this month showed.
Non-farm payrolls rose by 313,000 in February the Bureau of Labor Statistics said on Friday, topping economists’ estimates of 200,000 according to a Thomson Reuters poll. That compared with a revised 239,000 in January (previously 200,000). Job growth was boosted by gains in construction, retail, manufacturing, business services and financial activities.
The jobs number was up from the $239,000 jobs added in January and handily beat the 200,000 jobs added in the year earlier period. Construction, retail, financial activities and business services were particularly strong. Construction jobs were up 21,000 versus January as investors continue to build multi-family housing and commercial projects amid record low interest rates. Until the Fed raises interest rates or long rates rise, I do not see much holding back construction.
Retail jobs were up by 35,000 and were particularly strong during the holiday shopping season. Firms like Abercrombie & Fitch (ANF), Target (TGT) and Urban Outfitters (URBN) showed out-sized revenue and profits in the fourth quarter; it illustrates that for now, consumer spending in the retail sector is in full throttle.
Unemployment Rate Remained At 4.1 Percent
The unemployment rate of 4.1% was the same as last month’s and down from 4.7% in the year earlier period. An unemployment rate of 5% or less is considered full employment and is usually considered bullish. At rates this low I would expect economic growth – GDP and personal consumption expenditures (“PCE”) – to be white hot. Employees should demanding higher wages or switching jobs for higher pay. However, hourly wage growth does not reflect that thesis or what history has taught us to expect.
Average hourly wages of $26.75 were up 0.2% versus January and up 2.6% Y/Y. This contrasted January’s wage growth of 2.9%, which investors interpreted as inflationary and created a broad sell off in financial markets. This report signaled that investors could have their cake and eat it too; jobs could grow – signaling a strong economy – but still not strong enough for the Fed to hike rates and remove the punch bowl.
Economists have been expecting the President Trump’s tax cuts to create tailwinds for the economy. Signs suggest tax cuts have been a boon to the bottom lines corporations, and have spurred share repurchases. However, that additional cash flow has not trickled down enough to spur wage growth for workers. There is the potential for risk assets – stocks and real estate – to continue to levitate due to low interest rates and tax cuts. The Dow Jones (DIA) rose by nearly 1.8% Friday and “buy the dip” investors were rewarded again.
