Why the market may actually like this jobs report: Wages keep growing

Investing


Wages grew at a slightly faster pace in March, and might have risen more were it not for blustery spring weather.

The economy added 103,000 jobs in March, about 90,000 fewer than expected, and wages rose 0.3 percent, or 2.7 percent year over year. Wages grew slightly more than some economists expected, but were just above the 2.6 percent annual rate of February, when the economy added a stunning 326,000 jobs.

Markets, already shaken by trade news, took the jobs report in stride, with stocks remaining slightly lower and Treasury yields off a tad. The wage number was seen as one element of the jobs report that could have been a set back for stocks if it was much hotter than expected, as it was in January’s report.

The markets were concerned a more rapid rise in wages suggests that inflation could be picking up, and that would encourage the Fed to raise interest rates at a faster pace. But the March wage number was seen as a steady improvement, in line with slowly rising inflation.

“[February] was unsustainably strong and unrepeatable and I think that March was payback for a robust February, and I don’t think this will be repeated going forward either. I think we’ll get back toward trend with jobs in the 190,000, 200,000 ballpark,” said Ward McCarthy, chief financial economist at Jefferies.

“March was just endless misery from a weather standpoint. February was probably on the milder side,” he said. McCarthy said the number was also impacted by weather, with four nor’easter storms hitting the East Coast during the month.

Treasury yields rose Thursday, in anticipation of the jobs report and amid speculation the wage number could have been higher than anticipated. It was the surprise 2.9 percent jump in January wages, reported in early February, that helped spark the market sell-off and volatility.

“Obviously, the headline is disappointing. Some of the underlying components were encouraging, such as earnings which still show signs of a continued pickup,” said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch. “The Fed is probably looking at the broader trend. The unemployment rate is likely to remain stable and move lower. … It’s not great the participation rate came down a little bit but it’s a bit of a volatile series.”

The unemployment rate held at 4.1 percent for a sixth month, but economists had been expecting it to fall to 4 percent. The participation rate, or percent of the working age population in the workforce, was 62.8 percent, down from 62.9 percent in February.

“Seven hundred thousand people couldn’t make it to work and had to work part time,” said Diane Swonk, chief economist at Grant Thornton. She said the fact workers could only work part time was a big factor affecting wages, and it was weather related.

“Wages are up a little bit. It’s not really indicative of where we are. The labor market is tightening,” said Swonk.

Cabana said the number of people who could not get to work was elevated but below the five-year trend for March. “Construction is quite weak so maybe that’s a component of [weather impact],” he said. There was also weather effect seen in the decline in construction jobs by 15,000, after a 65,000 February gain.

The Labor Department said the average workweek for all nonfarm employees was unchanged. In March, average hourly earnings for all employees rose by 8 cents to $26.82. For production and nonsupervisory employees, wages increased 4 cents to $22.42 an hour in March.



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