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NFP Recap: Mixed data highlights stellar job creation, weak wage growth, strong economy

The official US jobs report for February was released on Friday morning, and despite a stellar reading for job creation – 313,000 jobs added in February against prior expectations of around 200,000 – the data was mixed overall, as wage growth was weak and the unemployment rate was slightly higher than expected. The key for both equity markets and the US dollar was the lower-than-expected wage growth, which helped assuage investor concerns about overheating inflation that were initially sparked by last month’s jobs report.

Jobs Data

As noted, Friday’s release reported that 313,000 jobs were created in February, far surpassing expectations of around 200,000, and also well-exceeding January’s job creation. Furthermore, January’s initially reported 200,000 figure was revised up to 239,000. December’s was also revised up, from 160,000 to 175,000, placing the 3-month average now at 242,000. The unemployment rate remained steady from January at a low 4.1%, but came out slightly higher than the expected 4.0%. Perhaps most telling, however, were month-over-month average hourly earnings, which rose by only 0.1%, lower than both the expected 0.2% and the previous month’s 0.3%. Annualized, that came out to 2.6%, lower than the 2.8% expected.

Equity Market Reaction

The seemingly perfect combination of stellar job creation and signs of lower wage inflation was a strong catalyst for the alleviation of pressure on equity markets. US stock futures jumped sharply on the jobs data, and the gains continued further into the market open, extending the rebound from the past several days amid noticeably calmer, less volatile markets. Earlier, this stock rebound and the drop in volatility were helped along on Thursday after President Trump announced tariff exemptions for Canada and Mexico, and generally backed away from his earlier hardline stance that suggested a blanket tariff policy. Volatility further declined on Thursday evening when it was revealed that North Korean dictator Kim Jong Un has extended an invitation to meet with Trump … and surprisingly, Trump quickly accepted.

US Dollar

As for the US dollar, in contrast, the mixed US jobs report on Friday resulted in indecisive whipsaw moves that culminated in a moderate drop for the greenback against other major currencies as the data was digested. Dollar index price action began with a sharp, immediate drop on the jobs release, then a sharp rise, and finally a steady drift lower. Despite the massive beat on the headline non-farm payrolls data, lower wage growth numbers eased concerns about rapidly rising inflation, which reined in expectations that the Fed will need to raise interest rates more aggressively than anticipated. In turn, lower expectations for overheated inflation and aggressive Fed rate hikes boosted equity markets while at the same time weighing on the US dollar.

While inflation concerns have subsided for the moment, however, the week ahead features major inflation-related data in the form of the US Consumer Price Index on Tuesday and US Producer Price Index on Wednesday. These inflation readings will very likely have further bearing on whether the stock market rebound and pressure on the dollar are sustained.

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