US February NFP: Solid sign for income and growth - Wells Fargo

Another month of job and wage gains support the case for better growth (2.5-3.0 percent) for 2018 and continued consumer spending, according to analysts at Wells Fargo. 

Key Quotes: 

“Nonfarm payrolls rose 313,000 in February with the three-month average at a solid 242,000 jobs. Job gains are consistent with 2.5-3.0 percent economic growth in the first half of 2018, with steady consumer spending, better business investment and a likely FOMC March rate hike, soon followed by another one in June.”

“Contrary to the casual rhetoric, Granger causality tests reveal that inflation leads wages—not vice versa. This statistical result follows the theoretical model that workers and employers respond to higher inflation. Workers respond to inflation by trying to negotiate higher nominal wages to maintain a real wage standard.”

“Employers find that higher inflation gives them the flexibility to raise wages and maintain profit margins."

“Despite a strong labor force participation number in today’s report, the overall trend for labor force growth has slowed more recently, compared to 2014-2016 rates. In February, the labor force jumped 0.5 percent, month over month, but is up just 1.2 percent over the past year.”

“Rising labor force participation among prime-age workers has offered some support, but the participation rate for workers 25-54 remains more than a point and a half below its pre-recession level and almost two and a half points below the high set in 1999. Unless participation rates continue to rise as solidly as this month, we expect payroll growth to slow and the unemployment rate to decline over the course of the year as businesses have increasing difficulty finding workers.”