On the February Jobs Report

Another too good to be true payroll gain, with January’s revised higher. The labor force expanded as the number of persons sidelined by the Omicron variant fell. Average hourly earnings barely grew at all, at the slowest rate since the trough of the pandemic recession. This is likely because all stimulus payments, unemployment benefits and tax credits ended in December, so firms are no longer in competition to attract labor against government income supports. This should alleviate concerns about a wage-price spiral when February inflation reports higher because of the run-up in oil prices. We are at “inclusive maximum employment.” Yet the market-implied probability of Fed lift-off in March is now below 100%, when less than a month ago there was a very strong probability of a 50 bp hike. Powell said this week lift-off is on, but growing uncertainties in Ukraine may yet redeem our January call that lift-off would be deferred.