050306 US Employment.docx

US Watch
Group Economics
Macro & Financial Markets Research
Maritza Cabezas, +31 20 343 5618
Rate hike on track after US job report
6 March 2015
The February nonfarm payrolls report continued to show solid gains of 295K after a downwardly
revised 239K the previous month. The unemployment rate fell to 5.5% from 5.7%. Wage growth was the
only grey spot, rising only 2% from a year earlier, a slightly slower annual gain than 2.2% in January.
We expect the Fed will hike rates in June 2015. Fed policymakers showed that they were more positive
about the US economy. We do not see faster wage growth as a precondition to Fed tightening,
although if wage growth improved this would make the FOMC’s decision easier.
Robust payroll data, despite bad weather
...case for extensive “patience” is loosing ground
February’s’ employment report confirms the solid recovery of
With the labour market on solid footing, FOMC members
the US labour market. Nonfarm payrolls showed broad gains of
announced that even if inflation is well below the Fed’s 2%
297K. This is the twelfth consecutive month of job gains above
target in the near term, this should not be an impediment to
200K. January’s payrolls were revised downward by 18K to
normalising interest rates, as long as core inflation holds up.
show an increase of 239K more jobs. The unemployment rate
Several FOMC members (Mr. Fischer, Mr. Williams and Ms.
fell to 5.5% from 5.7%. Looking at the details, leisure and
Mester) have said lately that they are of the view that the Fed
hospitality posted the largest gains, adding 66K jobs. Construction
should not wait too long to raise interest rates, since a late rate
saw a slight slowdown in hiring of 29K compared to the previous
hike could force the Fed to be more aggressive in its tightening
month (49K), this could partly be explained by the severe winter
after the lift-off. FOMC member Dudley, however, has had a
weather in the North East. Meanwhile, a stronger dollar is having
more dovish tone and has suggested that raising interest rates
some impact on manufacturing activity, hiring in the sector
too late is safer than acting early.
remained positive, but slowed down a bit to 8K from 21K.
Our view: Fed’s mid rate hike target in place
Wages pull back in February, but wage rise on the cards
We expect the Fed will hike rates in June 2015. We do not see
Up to now, unemployment has been falling rapidly but wage
a higher participation rate or faster wage growth as a
growth had been a bit sluggish. In February wage growth was
precondition to Fed to Fed tightening, although if these
up 2% from a year earlier, a slightly slower annual gain than
indicators improved this would make the FOMC’s decision
2.2% in January. On a month on month basis wages grew
easier. Our forecasts indicate that unemployment will continue
0.1% in February, but that followed 0.5% the previous month,
to decline this year to around 5% at year-end. As for inflation,
suggesting that there could be some payback for the strong
we expect that a rise in disposable income resulting from lower
wage growth in January. In the past few days, the largest
oil prices and higher wages, should lift consumption,
private employer in the US, announced that they will lift the
supporting demand. We see, however, some downside risks
minimum wage. This announcement has already been
for lower core inflation in the coming months, which could
followed by other large companies suggesting they will do the
delay the Fed’s decision to hike rates.
same. Indeed, we expect that a tighter labour market will result
in a modest acceleration of wage growth in 2015.
Twelve months of job gains above 200K
Fed’s view: employment broadly improving…
Fed policymakers have been quite positive about the US
economy. During Chair Yellen’s testimony before the Senate,
she mentioned that the employment situation was improving in
many dimensions. She was positive about the unemployment
rate and the pace of monthly job gains. She mentioned that
long-term unemployment had declined substantially and labour
market opportunities had recovered to pre-recession levels.
Private payrolls
Non farm payrolls
Only the participation rate and wage growth had room for
Source: Thomson Reuters Datastream
Unemployment (rhs)
Rate hike on track after US job report – 6 March 2015
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