Friday’s spotlight shines on the much-anticipated release of the February nonfarm payrolls report by the Labor Department due later at 13:30 GMT, or 8:30 AM ET. A positive report on job growth will potentially boost wages, and in turn, lift inflation and secure odds for a rate increase by the Federal Reserve.
According to economists, a growth rate of between 3% and 3.5% in wages is required to lift inflation to the central bank’s target of 2%. But inflation has been already firming, in part as commodity prices strengthen.
Economists’ bets on jobs growth
The consensus estimate is that today’s employment data will present an increase of 200,000 jobs, following January’s growth of 227,000. Unseasonably mild weather also supported employment in the construction sector.
Unemployment rate is seen to lose 0.1% to 4.7%, even as more people likely entered the labor market, encouraged by the hiring spree.
Meanwhile, while average hourly earnings are forecasted to jump 0.3% after a 0.1% rise in January. That would bolster the year-on-year increase in wages from 2.5% in January to 2.8%.
The economy needs to create nearly 100,000 jobs per month to keep up with growth in the working-age population.
Expectations will be high after the ADP’s National Employment Report published that hiring had grown last month with the economy generation no less than 298,000 jobs in February. This has been marked as its strongest reading in almost 11 years.
“It's really surprising that the US is still producing this many jobs because we are quite close to full employment,” stated Thomas Costerg, a senior US economist at New York-based Standard Chartered. He added that “it’s way too early to see the impact of the new administration's policies.”
All sectors of the economy, excluding the government, are estimated to have expanded payrolls in February.
With the employment market nearing full employment, wage growth could accelerate as companies are forced to raise compensation to maintain employees and draw in skilled workers.
Will the rate hike happen?
US employers were projected to have kept a brisk pace of hiring in February and increased wages for workers. This event is anticipated to give the Fed the go signal to hike interest rates next week despite slowing economic growth.
“February employment appears to be the final hurdle for the Fed to raise interest rates in March, and it's likely to be easily jumped,” noted Ryan Sweet, senior economist at Moody’s Analytics.
Fed Chair Janet Yellen signaled in the prior week that the US central bank would have higher chances of increasing interest rates at its March 14-15 policy meeting. The Fed previously lifted its benchmark overnight rate in December 2016 and has given prospects of three rate increases for 2017.
However, rising inflation, along with a tighter labor, stock market spike and firming global economy, has caused some economists forecasting that the Fed could raise rates much faster than is currently expected by financial markets.
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