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REPEAT: MNI 5 Things:Markets Eye US Hourly Earnings Cautiously

Repeats Story Initially Transmitted at 20:49 GMT Mar 8/15:49 EST Mar 8
5 Things To Look For In US Employment Report
By Holly Stokes and Sara Haire
     WASHINGTON (MNI) - Friday's US Employment Report should hold few surprises
for the nonfarm payrolls headline number, while average hourly earnings should
be the main event. Rising wage inflation continues to be a concern, with the
median amongst analysts in an MNI survey forecasting for a slowdown to a 0.2%
gain, while markets are hedging to the high side. Analysts are forecasting a
210,000 gain for headline payrolls and 200,000 for private, while also possibly
seeing a decline in the unemployment rate to 4.0%. Average weekly hours are
expected to rise back to 34.4 after falling to 34.3 in January. 
     Ahead of the release, we outline five themes for particular attention.
     - Payrolls are not expected to be the market mover this Friday. An MNI
survey of analysts shows that in the past year, analysts have only
underestimated the headline number twice, with a stronger tendency to
overestimate. However, analysts have underestimated the payrolls number in six
of the last ten February releases, so there could be some upside risk. Since
2011, the February payrolls number has come in stronger than 180,000 each time,
with an average monthly gain of 227,000, so analysts expecting a 210,000 gain
this month should be unsurprised by the headline number. Markets are estimating
a more moderate 202,000 gain, softer than analysts' forecasts. However, analysts
in the past year have been slightly more accurate than the whisper number, with
the absolute average miss for the analysts being 43,000, while whisper has an
absolute average miss of 48,000.
     - In January, average hourly earnings, or AHE, surged 0.3% m/m and pushed
the y/y to 2.9%, likely off of January's unseasonably cold and snowy weather
that prevented some low-wage hourly earners from getting to work. As weather
effects dissipated, February average hourly earnings are expected to post a
softer reading. Weather abnormalities often skew the labor force and temporarily
boost AHE, as lower paid workers have reduced shifts, then the effect reverses
when these workers return and push AHE back down. Thus, February may show a
small scale repeat of the 2017 post-hurricane season, when October's initial
flat AHE shocked market participants that failed to account for the skewed labor
force's role in September's 0.5% m/m surge. While the downward surprise in
October led to fears of softening inflation, a small February print may be a
more welcome outcome - easing market concerns of overheating and rapid rate
hikes.
     - Market participants' expectations for average hourly earnings outpace the
median analyst estimate, with the market whisper number looking for yet another
0.3% month/month gain. If correct, this will be the fourth consecutive month of
0.3% or above wage gains - which would be the longest streak since the series
start in 2006. Given the demonstrated volatility in AHE, a fourth surge is
unlikely. However, markets have correctly forecasted AHE for the past three
months, which suggests a possible upside surprise to analysts' forecast of a
0.2% gain. While a 25bp hike is already baked in for the March FOMC meeting,
another 0.3% gain or stronger would fuel market anxieties and push futures down
and treasury yields higher, likely surpassing last month's lows.
     - Despite the Fed stating that they believed that unemployment was either
near or a little beyond full employment in their semi-annual monetary policy
report, the median expectation is that unemployment rate will slip even lower,
to a 4.0% rate. This would mark a new cycle low, and be the lowest rate seen
since December 2000. If unemployment does slip to 4.0%, it could raise further
questions on how low full employment is and whether the current level is already
unsustainable. While Chair Powell did note that full employment could be as low
as 3.5% in his Senate testimony, he also cautioned that the Fed is watching and
does not want to get "behind the curve," and, "have inflation move up and have
to raise rates too quickly."
     - Analysts have been citing initial unemployment claims reaching historic
lows as a reason to expect a large rise in payrolls. There has been an inverse
relationship between the change in survey weeks and the change in headline
payrolls in the last year. However, January stepped out of sync with claims
rising between survey weeks, but payrolls also seeing a significant gain. This
could lend itself to February payrolls potentially continuing the break in
trend. However, recent February data suggest payrolls will see a healthy gain,
with significant emphasis in the manufacturing sector. The ISM manufacturing
employment index bounced back up to 59.7 while the regional Fed indicators also
saw rises in their employment sectors.
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com
--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

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