US employment data to set the general tone for high-frequency data - BBH

Analysts at BBH suggest that the market is as confident as it can get about a 25 bp rate hike by the Federal Reserve later this month and the US employment data sets the general tone for the monthly cycle of high-frequency real sector data.  

Key Quotes

“The labor market is robust.  Weekly jobless claims and the four-week moving average are at new cyclical lows.”

“The consensus calls for a little more than a net 200k increase in non-farm payrolls, little changed from the January increase.  The US grew an average of 181k jobs a month in 2017.  The 12-month average peaked in the cycle three years ago near 260k.  In January, the 12-month average stood at 176k.  The recent averages are above the longer averages, meaning that there has been an acceleration in hiring lately.”

“On the other hand, the average hourly earnings are watched as a key measure of wage pressure, which is understood to drive core inflation.  The 0.3% m/m rise in January give a y/y rate of 2.9%, the most since 2009, became part of the fuel that lifted inflation expectations and encouraged the closing of the gap between the three hikes the Fed envisions and what the market had been discounting.”

“The issue for households, investors, and policymakers is whether wage growth has accelerated.  We agree with Fed Chair Powell's assessment that they probably haven't, which seem consistent with other data on labor compensation.  There is much month-to-month volatility, but long-run moving averages are considerably more stable, and both the 12- and 24-month averages are monthly gains of around 0.2%.  A 0.2% print for February would bring the y/y rate to 2.8%.”

“The average workweek unexpectedly fell to 34.3 hours in January from 34.5 in December.  We dismiss this as a bit of a statistical quirk and expect it to return to its longer-run average of 34.4 hours.”

“At least three regional Federal Reserve banks publish GDP trackers.  The Atlanta and the St. Louis Fed models have Q1 growth at 3.5% and 3.4% SAAR, respectively.  The NY Fed's model is a bit lower at 3.0% SAAR.  All three see an acceleration in Q1, bucking the recent curse of disappointing starts to the year.”