Solid monthly job gains continued across a number of sectors in February. Average hourly earnings slowed as the result of a complex mix of sector gains. Our FOMC outlook remains for a possible June move.
Job Gains Reflect Manufacturing Weakness, Consumer Strength
Overall job growth in February was a solid 242,000. Our theme for the annual outlook was the Great Divide and we certainly see this again in February’s jobs numbers. In today’s employment report, manufacturing jobs declined 16,000 while mining fell 19,000. In contrast, private service providing jobs rose a solid 245,000 with gains across all sectors except temporary help and transportation & warehouses—the second straight drop for these categories. These results are consistent with continued moderate economic growth and no recession in the outlook for 2016.
We have emphasized the divergence between the production and services sides of the economy over the past six months, and we can see that divergence in today’s numbers. Job gains support the case for continued consumer spending strength as well as growth in the residential and nonresidential construction sectors.
Labor Market Tightening, Rising Cost of Labor in Key Sectors
Another late cycle indication fr om the labor market is the rising cost of labor in several sectors (middle graph). As expected, the unemployment rate at 4.9 percent is consistent with rising wage pressures. Sectors such as information and finance reported above average wage gains over the past year and may well reflect a shortage of skilled workers available. Average hourly earnings in the retail and leisure & hospitality industries have also been strong, but may reflect the increase in the minimum wage for those groups.
More broadly, since 2013 and 2014, the employment cost index has trended upward, while productivity gains remain very modest at best. For the economy, this will put further pressure on corporate profit growth and further lim it companies’ willingness to invest and hire over time.
Reference: Wells Fargo’s Economic Indicators Report
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