US em­ploy­ment gains ac­cel­er­ate in Fe­bru­ary

The Pak Banker - - MARKETS/SPORTS -

US em­ploy­ers likely stepped up hir­ing in Fe­bru­ary, in a sign of la­bor mar­ket strength that could fur­ther ease fears the econ­omy is head­ing into re­ces­sion and al­low the Fed­eral Re­serve to grad­u­ally raise in­ter­est rates this year.

Non­farm pay­rolls prob­a­bly in­creased by 190,000 jobs last month in the U.S. La­bor Depart­ment's re­port due on Fri­day, with the un­em­ploy­ment rate hold­ing at an eight-year low of 4.9 per­cent, ac­cord­ing to a sur­vey of econ­o­mists.

The la­bor mar­ket gained 151,000 jobs in Jan­uary, af­ter the warm­est tem­per­a­tures in years boosted hir­ing in weather-sen­si­tive sec­tors like con­struc­tion, help­ing pay­rolls to rise by an av­er­age 279,000 jobs per month in the fourth quar­ter last year. "The em­ploy­ment data should re­in­force that the re­ces­sion de­bate is pre­ma­ture and over­done, and could strengthen the case for the Fed not wait­ing too long," said Ryan Sweet, se­nior econ­o­mist at Moody's An­a­lyt­ics in Westch­ester, Penn­syl­va­nia.

Fears of a re­ces­sion in the wake of poor eco­nomic re­ports in De­cem­ber and slow­ing growth in China sparked a global stock mar­ket rout at the start of the year, caus­ing fi­nan­cial mar­ket con­di­tions to tighten.

Fi­nan­cial mar­kets have priced out bets of an in­ter­est rate rise at the Fed's March 1516 pol­icy meet­ing and the prob­a­bil­i­ties for rate in­creases for the rest of the year re­main rather small.

Sig­nif­i­cant data such as con­sumer and busi­ness spend­ing im­proved strongly in Jan­uary though, lead­ing to pre­dic­tions that eco­nomic growth in the first quar­ter could rise by at least a 2.5 per­cent at an an­nu­al­ized rate. The econ­omy grew at a 1.0 per­cent pace in the fourth quar­ter of 2105.

Econ­o­mists say the im­proved growth out­look, to­gether with signs of in­fla­tion creep­ing up, could prompt the U.S. cen­tral bank to lift bor­row­ing costs in June.

The Fed raised its key overnight in­ter­est rate in De­cem­ber for the first time in nearly a decade.

There is a risk, how­ever, that pay­roll gains could come in below ex­pec­ta­tions af­ter a sur­vey on Thurs­day showed em­ploy­ment in the ser­vices sec­tor fell in Fe­bru­ary for the first time in two years.

Still, econ­o­mists say any below-fore­cast num­ber should not be in­ter­preted as a sign of la­bor mar­ket weak­ness as com­pa­nies are strug­gling to find qual­i­fied work­ers to fill open po­si­tions.

"De­spite the weaker ser­vices sur­vey, we still ex­pect solid pay­roll gains in Fe­bru­ary. How­ever, we should not be too sur­prised about a slow­down as the la­bor mar­ket ap­proaches full em­ploy­ment," said chief U.S. econ­o­mist at Uni­Credit Re­search in New York.

Fed Chair Janet Yellen has said the econ­omy needs to cre­ate just un­der 100,000 jobs a month to keep up with growth in the work­ing age pop­u­la­tion.

The la­bor force par­tic­i­pa­tion rate, or the share of work­ing-age Amer­i­cans who are em­ployed or at least look­ing for a job, is near four-decade lows.

While wage growth is ex­pected to have mod­er­ated in Fe­bru­ary, econ­o­mist say it would be largely pay­back for Jan­uary's jump, which was driven by a cal­en­dar quirk. Wage growth is seen ac­cel­er­at­ing as the la­bor mar­ket set­tles into full em­ploy­ment.

Av­er­age hourly earn­ings are fore­cast in­creas­ing 0.2 per­cent af­ter surg­ing 0.5 per­cent in Jan­uary.

In Fe­bru­ary, em­ploy­ment gains were likely con­cen­trated in the ser­vices sec­tor, with min­ing prob­a­bly los­ing more jobs and man­u­fac­tur­ing re­vers­ing some of Jan­uary's sur­prise in­crease. Min­ing pay­rolls have de­clined by 146,000 jobs since peak­ing in Septem­ber 2014, with three-quar­ters of the losses in sup­port ac­tiv­i­ties. More losses are likely af­ter oil­field ser­vices provider Hal­libur­ton Co said last month it would cut a fur­ther 5,000 jobs be­cause of a pro­longed slump in oil prices.

A re­bound is ex­pected in pri­vate education jobs af­ter a record 39,000 plunge in Jan­uary.

"There are large sea­sonal swings in that com­po­nent caused by win­ter hol­i­days at pri­vate univer­si­ties that prob­a­bly weren't ad­justed for prop­erly in Jan­uary. There weren't ac­tu­ally mass fir­ings of col­lege pro­fes­sors that we're aware of," said Ted Wiese­man, an econ­o­mist at Mor­gan Stan­ley in New York.

A fur­ther mod­er­a­tion is ex­pected in con­struc­tion em­ploy­ment af­ter the hefty weather-driven gains in the fourth quar­ter.

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