NFP Preview: Wage growth in focus as inflation concerns persist

February US jobs data, which will be reported on Friday morning by the US Department of Labor, is poised to take on increased importance for markets and investors.

February US jobs data, which will be reported on Friday morning by the US Department of Labor, is poised to take on increased importance for markets and investors. This is because the previous month’s data that was reported in early February helped spark a wave of heightened equity market volatility and investor concerns over rising inflation and interest rates. More specifically, higher-than-expected wage growth data gave an abrupt slap in the face to a stock market that had been rising complacently and seemingly worry-free up to the day that data was released on February 2nd.

In subsequent days after the release, equity markets briefly entered into 10%+ correction territory as market volatility spiked dramatically. Since then, markets have recovered a significant portion of their losses, but investor concerns have still been further exacerbated by higher consumer price index readings, rising government bond yields, hawkish testimony by the new Federal Reserve chief, and President Trump’s announcement of hefty US import tariffs. As stock markets wavered sharply and struggled to find direction during this very eventful time, the US dollar first rose on expectations of higher inflation and interest rates, but then fell on worries of a Trump-driven global trade war.

On Thursday, as markets awaited details of Trump’s tariff plans and potential “carve-outs” for specific countries including Canada and Mexico, equity markets were mixed but the dollar was sharply up. Much of the dollar’s rise, though, can be attributed to a sharp drop for the euro, which fell in response to a European Central Bank decision that was more ambiguous and less hawkish than might have been expected. After Trump’s tariff announcement on Thursday afternoon, Friday morning’s US jobs report will be the most eagerly anticipated market event on the schedule for the balance of this week.

Current NFP Expectations

The consensus expectations for Friday’s headline non-farm payrolls data point to around 200,000 jobs added in February, approximately in-line with January’s better-than-expected outcome. The February unemployment rate is expected to have fallen to an extreme low of 4.0%, even lower than the past several months’ 4.1%. In terms of wage growth, average hourly earnings are expected to have increased by 0.2% after January’s higher-than-expected 0.3% increase and December’s upwardly revised 0.4%.

Jobs Data Preceding NFP

Key employment-related releases preceding Friday’s official jobs data have shown a mixed-to-strong employment picture overall. February’s ADP private employment report came out substantially better than expected, as has been the case in recent months. The ADP release revealed a solid 235,000 private jobs added in February against a prior forecast of around 200,000. It should be kept in mind, however, that the ADP report is typically not a very accurate pre-indicator of the official NFP jobs data from the US Labor Department, and sometimes even misses the mark dramatically.

Other pre-NFP indicators include the ISM manufacturing PMI employment component, which showed expanding job growth at 59.8 in February, substantially faster than January’s 54.2 reading. The services sector (ISM non-manufacturing PMI), however, showed substantially slower job growth at 55.0 in February against January’s 61.6 reading.

Finally, February’s weekly jobless claims have mostly been better (lower) than expected or in-line with expectations, and have remained near historic lows. The exception is the most recent reading released on Thursday for the end of February, which showed a moderately higher-than-expected reading.

Forecast and Potential USD Reaction

With consensus expectations of around 200,000 jobs added in January, our target falls in the range of 200,000-220,000, given the mixed-to-strong pre-NFP data inputs. Though the US dollar will likely be moved by a host of other fundamental factors, including continuing speculation on a potential global trade war, any headline jobs outcome falling above this range should give the US dollar at least a short-term boost. A result falling within the range will unlikely make much of a significant impact. And any reading that falls significantly below the range is likely to extend the bearish sentiment that continues to plague the greenback. Of course, the headline result, as previously noted, is not the only important data point. If wage growth figures again surpass expectations, the dollar could see a more substantial boost on higher inflation and interest rate expectations.

NFP Jobs Created

Potential USD Reaction

> 250,000

Strongly Bullish


Moderately Bullish




Moderately Bearish

< 170,000

Strongly Bearish

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