US NFP: Expect solid payrolls with focus on wages - Nomura

Analysts at Nomura expect nonfarm payroll employment to increase 210k in February with 205k from private firms and a 5k contribution from government.

Key Quotes

“Incoming employment indicators remained strong in February. In particular, the Conference Board’s labor market differential, the difference between those reporting jobs “plentiful” versus “hard to get,” increased to its highest reading since the early 2000s. Moreover, initial jobless claims remained low during the BLS survey week (the week containing the 12th of the month), reflecting a tightening labor market where firms are increasingly reluctant to let go of their workers. February’s ADP employment report showed a 235k increase in private employment, broadly consistent with another +200k reading from the BLS on Friday.”

“We expect a healthy 18k increase in manufacturing employment in February. The manufacturing sector contributed 189k to total payroll employment growth in 2017, up significantly from the 9k drag in 2016. The employment indices in February’s Philly Fed, Empire State and ISM manufacturing surveys all improved, pointing to another month of solid employment growth as synchronized global growth continues to support manufacturers.”

“Average hourly earnings

• We expect average hourly earnings (AHE) to increase 0.2% (0.19%) m-o-m in February, following a solid, 0.3% increase in January. If realized, the y-o-y rate will likely slow to 2.8% in February from 2.9% in January. While January’s reading was above consensus, part of the surprise in the report also involved noticeable upward revisions to prior months as well. However, while strong, part of the AHE increase in January was attributable to a soft, likely weather-related reading on aggregate hours. In addition, the sharp increase in wages was concentrated in supervisory workers (nonproduction) as production & nonsupervisory wages increased by only 0.1% m-o-m.
• While the y-o-y growth rate of total AHE jumped 0.2pp to 2.9%, the corresponding reading for production workers remained unchanged at 2.4%.
• Wage growth for supervisory workers tends to be much more volatile relative to production workers. Moreover, wages for production workers tend to track more closely wage growth as measured by the employment cost index (ECI), the FOMC’s preferred measure of wage pressures.
• Altogether, last month’s acceleration in wage growth does not change our medium-term outlook that wages will pick up gradually this year and we view the risks around our February forecast as roughly balanced. There is some risk that aggregate hours could rebound, pushing down AHE. However, given the tightness in the labor market, there also appears to be upside risk that wage growth could accelerate more than expected.”