Nonfarm Payrolls February 2018

US payrolls jumped by 313,000 in February. This large headline increase in jobs was further buttressed by the return of 806,000 workers to the labor market. As a result, labor force participation- something we have been keeping a close eye on for quite some time- increased to 63%, while the unemployment rate held at 4.1%. It is important to note that the increase in labor force participation does represent an increase of 0.3% from January, but the figure is little changed from this time in 2017. Also tempering the strength of this report, is a nominal rise in wages. Wage growth for US workers increased a meager 0.1% in February and January’s significant increase in hourly earnings was revised lower by 0.1% to 2.8%. The American work week came in at 34.5 hours last month which is slightly better than the 34.4 hours worked in January. Taking a look at the sectors within the labor market, construction and retail added the most jobs totaling 61,000 and 50,300 respectively.

So, what does it all mean? To us at TWP, it means financial markets can breathe a sigh of relief as it relates to Fed policy, the path of rate increases relative to growth, and ultimately, risk… at least for the time being. To be sure, the US administration will be delighted with the complexion of this report- a strong headline figure, a sizable increase in the labor force, unemployment remaining low etc… The report also dials back inflation expectations as wage growth was a bit subdued in February and this is importantly on the heels of strong CPI and PPI figures. Let’s not forget the solid US ISM number recently reported at 60.8%. As it relates to financial markets, this is quite a benign report and taken in concert with recent developments from Europe, a la the ECB, and China’s targeting of 6.5% GDP growth, we feel it justifies our current strategic outlook and neutral tactical bias.

TWP remains neutral USD on a trade weighted basis, bearish duration, and neutral equities.

Market Outlook: Neutral USD, Bearish Rates, Neutral Equities