Ian Shepherdson at Pantheon Macroeconomics nailed the jobs report.
On Friday, we learned the US economy added 242,000 jobs in February, more than the 195,000 that was expected by economists and up from 172,000 in January.
Underneath the headline number we got wage data that disappointed, with average hourly earnings falling 0.1% over last month in February and rising just 2.2% compared to the same month last year.
Expectations were for wages to rise 0.2% over last month and 2.5% over the prior year.
But for Shepherdson, this “miss” on wages is merely a calendar quirk that, if you know what to look for, was entirely expected and will be corrected in coming months.
“Don’t be taken in by the dip in hourly earnings,” Shepherdson wrote in an email on Friday.
“It just continues a very consistent pattern of undershooting in months when the 15th — payday for people paid semi-monthly — falls after the employment survey week. The same thing will happen in March, but then there’ll be a huge rebound, putting wage growth year-over-year at new highs. January’s 0.5% month-over-month jump was the response to the same calendar quirk depressing December wages, when the print was 0.0%.”
Or as Shepherdson simply put, “In one line: The wage number is wrong, payrolls are strong.”
So, this is a little wonky but the thing to note is that the jobs week survey is taken during the week in which the 12th day of the month falls.
In February, the 12th fell on a Friday, and so Shepherdson’s point is that workers who get paid twice a month likely didn’t get paid until the following Monday, making wage gains look artificially low. The 12th falls on a Saturday in March, and so the same calendar quirk will likely impact the wage numbers yet again.
Overall, Friday’s report was a solid report that likely makes the Federal Reserve’s interest rate decision later this month more challenging, though markets are still very much expecting the Fed not to raise rates. Pricing from Bloomberg on Friday indicated just an 8% of a rate hike on March 16.
But the headline numbers, as well as the rising participation rate, the falling broader U-6 unemployment rate, and robust headline gains shows a labour market that is not worried about or reacting to the financial market anxiety that has been a major theme in 2016.
Here’s Shepherdson’s chart showing how payrolls are impacted when the survey week doesn’t include the 15th of the month.
And this chart from Bloomberg’s Matt Boesler is a clean visualisation of how the day of the week on which the 12th falls impacts the month-on-month wage number over time.