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February jobs report expected to show strong labor market continuing with solid wage gains


Worker drills plywood in Lehi on Friday January 7, 2022.

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In February, the economy likely added more jobs than usual and wage growth was strong.

At 8:30 am Friday, the Federal Reserve releases the February Employment Report. This is the last monthly data that the Federal Reserve considers before its March 15-16 meeting. It is expected that the central bank will raise its interest rates in this meeting, which would be the first increase since 2018.

Dow Jones reports that economists anticipate 440,000 job creations in February. That compares to 467,000 in January. According to Dow Jones, wages were forecast to increase by 0.5%, or 5.8%, year-over-year. The unemployment rate will fall to 3.9% from 0.1 percent.

Ethan Harris from Bank of America, Head of Global Economics, stated that the labor market is becoming tighter quickly and strong wage growth will continue to be a constant. It’s going to remain a tight labor market…we predict that wage inflation will stay at 6% through the year. The January wage growth rate was 5.68%, year-over-year.

Dual mandates are full employment and price stability for the Fed. Although the Fed is achieving its goals in employment, the central bank will continue to combat rising inflation through a series interest rate increases. It is anticipated that the first hike will be a quarter-point rise in March followed by as many as six further increases throughout this year.

Harris stated, “For the Fed this just keeps them in track.”

The inflation rate is high and economists keep an eye on wage growth. It is likely to increase with recent spikes in oil prices following the invasion by Russia. Consumer price index increased 7.5% in January on a year over year basis and it will rise further in February, when it is published next week.

The concern is that wage growth may become too strong to support a wage- and price spiral.

Rising wages can be a catalyst for economic growth, as they support consumers. Barclays’ chief U.S. economist Michael Gapen said that he expected households to draw funds from their savings in the quarter ahead of consumption. However, rising wages may reduce this impact.

He said, “It will come from labor market earnings rather than drawdown.” The labor market should be used to generate solid income growth.

According to economists, job growth is likely from many industries. Leisure and hospitality are expected to see growth.

Supply chain issues still hinder manufacturing. However, they are less of an issue in the automotive sector. According to Mark Zandi (chief economist, Moody’s Analytics), they are regaining their production schedules. “Construction seems more problematic. A record number of houses are being built. It seems like they can’t get any work done. The industry is being affected by parts shortages, and labour shortages.

Jefferies’ money market economist Tom Simons stated that the supply shortage continues to affect the labor market.

The supply of labor is the limiting factor. Strong wage numbers should reflect that. Simons stated that this trend will be confirmed by another decline in unemployment.

Simons stated that he is also watching wages rises. Simons said, “It’s a huge deal just in terms of trying to conceptualize whether the consumer can maintain up with inflation.” The labor market has been so tight that many things are still in high demand. As employers try to hire workers, it seems normal that wages will rise.