The Friday sun rises on a global hawkish-to-dovish (policy) Pivot Party as the pervasive onslaught of global Quad 4 data marches on ….
Suffice to say, the +20K print on February Nonfarm Payrolls is not what growth bulls and bond bears were looking for. These investors were already on tenterhooks over the prevailing state of global growth, on cratering Chinese exports and diminished prospects for a grand trade resolution. The dovish pivot, short-covering reflation rally has already played out and resurgent dollar strength is serving to constrain a more prolific breakout in the reflation impetus.
As we highlighted (again) yesterday on The Macro Show, the late-cycle acceleration in Nonfarm Payroll growth (green highlight in payroll growth chart below) was catalyzed by the longest stretch of accelerating growth ever and cultivated further by the plunge into largely anomalous, deficit funded late-cycle fiscal stimulus. This largely anomalous late-cycle acceleration in payroll growth is now rearview with the burden of maintaining a flat to positive slope on aggregate income growth left to further accelerations in late-cycle wage inflation.
Suffice to say – with Average Hourly Earnings needing to accelerate to +3.6% Y/Y (assuming consensus NFP at 180K) or NFP needing to print 684K (assuming flat AHE at +3.18%) – it was low probability that we got any material acceleration in aggregate income growth or, by extension, material improvement in the baseline expectation around Consumption Growth. That was indeed the case although late-cycle wage inflation continues to manifest rather discretely.
Inside The February Jobs Report:
- Headline = +20K with year-over-year growth decelerating -22bps to +1.69% Y/Y
- Average Hourly Earnings = +3.4% Y/Y, accelerating to a new cycle high
- Implied Aggregate Income = The acceleration in AHE helped to offset the marked slowdown in payroll growth with the net effect implying a modest sequential deceleration in aggregate income growth in February.
- Implied Industrial Production = A modest deceleration in aggregate hours in the manufacturing sector implies modest sequential softness in February Industrial Production.
As we’ve highlighted in recent months, labor market strength, accelerating wage growth and higher unit labor costs (see yesterday’s 4Q data) into decelerating growth is the private sector equivalent of hiking into a slowdown. This will probably serve to exacerbate margin pressures for corporates already facing rising prospects of a multi-quarter earnings recession.
