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US Job Creation Steady, Wages Stagnant

 

One of the puzzles of the labor market is that despite a year of strong job creation the wages of the American worker are stagnant, growing no faster than they were twelve months ago.

U.S. non-farm payrolls grew by a seasonally adjusted 295,000 positions in February capping four quarters with an average 275,000 new jobs each month. And that in spite of the negative 18,000 revision to December and January's totals. It was best annual performance in fifteen years. Economists in the Bloomberg survey had forecast a 235,000 addition to payrolls.  

Manufacturing payrolls climbed by 8,000, following 21,000 in January and 19,000 in December. 

The unemployment or U-3 rate, compiled from a different survey from payrolls, fell 0.2 percent to 5.5 percent, largely because people left the labor force. It was the lowest rate in six and a half years.  

A broader version of unemployment, the so-called U-6 rate fell to 11.0 percent in February from 11.3 percent. This rate includes part-time workers who want full time work and anyone who has looked for a job in the past twelve months--the standard U-3 rate only counts people who looked in the prior month. 

The dollar rose strongly against  its competitors, closing at 1.0883 versus the euro, up 1.4 percent and 121.10 agains the yen, a gain of 1 percent. 

The Dow ended down 279 points 1.54 percent at 17,857, the Nasdaq  Composite lost 55 points, 1.1 percent, to 4,927 and the S & P 500 shed 30 points, 1.42 percent  to 2,071 as traders anticipate the first Federal Reserve rate increase in eight years in June.  

Average hourly earnings rose just 0.1 percent in February, half the prediction. A 0.5 percent gain the prior month had some economists hailing the increase as the beginning of the long awaited impact of a tight labor market on pay.

The annual gain in wages fell from 2.2 percent to 2.0 percent in February. No change had been expected.  Over the past year the average monthly addition to wages has been 0.2 percent; the annual increase has been 2.1 percent. 

The core annual PCE deflator, used by the Federal Reserve to gauge inflation was 1.3 percent in January. The overall yearly PCE rate was just 0.7 percent. Annual CPI was -0.1 percent in January the first non-recessionary negative reading in the United Stastes on record. The core rate was 1.6 percent. 

Average weekly hours were unchanged at 34.6 percent and, disappointingly, the labor force participation rate fell 0.1 percent to 62.8 percent, only 0.1 percent from its 35 year low. 

It is likely that wages are being constrained by the types of jobs that were created in February and indeed through the expansion.  

Over half the new jobs in February, 152,000 of 295,000 were in the 'leisure and hospitality (66,000), education and health (54,000), and retail trade (32,000)' categories.  These are the three lowest paying categories of the 14 that the Bureau of Labor Statistics uses to classify employment. 

The U.S. economy expanded at a 5 percent annual pace in the third quarter of last year but that dropped to 2.2 percent in the final three months.

Projections for growth in the first quarter have been declining as statistics from retail sales; manufacturing, exports and construction have missed estimates.  Many estimates are now between 1.5 percent and 2.2 percent annualized. 

 Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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