Feb. Nonfarm Payrolls Preview: Investors Are Facing A New Normal of Strong Employment

February's nonfarm payrolls report will be released at 8:30 ET this Friday. The consensus estimate polled by Bloomberg shows that nonfarm payroll is expected to increase by 200K. The unemployment rate is expected to remain at 3.7%.

Even if the pace of hiring could slow following the reported hiring surge in January, February hiring typically is rather strong as firms increase headcount after post-holiday layoffs in January. Fed Chair Jerome Powell's estimated neutral pace of hiring is 100K. Seasonal factors re-exerting themselves in the data can create the potential for downward revisions to the January payroll estimate.

Economists haven't seen signs of a sharp slowdown in the labor market. Most regional Fed branch manufacturing surveys showed an improving picture for employment.

Continuing Jobless Claims in the United States increased to 1905 thousand in the week ending February 17 from 1860 thousand in the previous week, well below the average of 2763.3 thousand from 1967 until 2024.

Measures of job losses remain near their recent lows. The WARN tracker (Worker Adjustment and Retraining Notification Act) showed that the layoffs in the U.S. job market are not obvious.

The majority of service-sector PMIs indicate stable employment levels. The relatively weaker performance observed in the ISM services sector may be attributed more to challenges in hiring rather than to increased layoffs or a decrease in demand. The Conference Board labor differential declined in February along with downward revisions to the prior month, but the level is still consistent with steady job gains.

Sector distribution: The more acylical industries - including health care and social assistance - are likely to remain a source of job growth. Job growth in financial services faces headwinds as banks announce layoffs and higher mortgage rates likely limited hiring in real estate leasing and services. Government employment growth is cooling from its rapid pace last year. Nomura securities forecasted public sector growth of 25K, down from an average pace of 57K per month in 2023, near multi-decade highs.

Private companies in the US hired 140K new employees in February 2024, a slight increase from the upwardly revised figure of 111K in January, though it fell modestly short of the anticipated 150K.

The service sector drove this growth by contributing 110K positions. The leisure and hospitality industry led with 41K added jobs, with construction not far behind at 28K. The fields of trade, transportation, and utilities collectively added 24K jobs. In contrast, the mining industry experienced a reduction of 4K jobs, and the information sector dropped by 2K jobs.

Meanwhile, goods producers added 30K. The manufacturing industry saw a modest rise, adding 6K jobs.

In a notable shift, pay increases for individuals changing jobs picked up pace for the first time in over a year, climbing to 7.6% from the previous 7.2%.

JOLTs report released on Wednesday showed the total job openings in the U.S. decreased by 26,000 from the prior month, reaching a three-month low of 8.863 million in January 2024, which fell short of market expectations of 8.9 million. The month saw an increase in job openings within the nondurable goods manufacturing sector, which added 82,000 positions. However, there was a notable decline in private educational services, where job openings dropped by 41,000.

The year-on-year growth rate of nonfarm payroll wages may still be above 4%, although monthly wage growth likely fell to 0.2% from 0.6% prior as the weather effect from January reverts. Powell said in October last year that wage growth of 3.5% was appropriate to achieve the 2% inflation target.

The Atlanta Fed's wage tracker previously showed that the moving average of wage growth over the past three months dropped to 5.0%.

A result in line with economists' expectations would likely reduce concerns about a labor market reacceleration. This would be reassuring for the Fed, as they gain confidence that growth is slowing to a pace consistent with a return to the inflation target. Still, as long as growth is resilient, the timing of the first rate cut will likely depend more on realized inflation data.

In the post-epidemic era, many of the core metrics of the US economy have undergone fundamental changes compared with the past.

After the global financial crisis in 2008, the unemployment rate in the United States remained at a relatively high level for a long time. It was not until 2014 that the U.S. unemployment rate fell below 6%. The current situation is completely opposite to that then. With the return of domestic investment in the United States, radical fiscal policies, and the continued boom of the real estate market, it is difficult for us to see signs of a significant increase in the unemployment rate in the United States.

Source: Moomoo, FRED, ADP, BLS

By Moomoo US Calvin