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Payrolls increase by just 20K in February, significantly below the 180K expected. According to analysts at Wells Fargo, the trend in hiring is slowing, but today’s data exaggerates the extent. They point out job growth remains strong enough for further labor market tightening, with unemployment down and wages up.

Key Quotes:  

“Through the extreme swings in payroll gains the past few months, the trend in job growth is moderating. Employers added just 20K new jobs in February. The disappointing print followed an impressive gain in January (upwardly revised to 311K), putting the three-month average at 186K. The slower trend in job growth looks consistent with the upward drift in jobless claims and softer survey readings on hiring from recent purchasing manager indices the past few months.”

“Despite the slowdown, job growth remains strong enough for the labor market to continue tightening and put upward pressure on wages. Average hourly earnings rose 0.4% in February. While the gain might be somewhat exaggerated by the small number of new hires (who start at lower wages), earnings are up 3.4% over the past year, a new cycle high.”

“The unemployment rate declined two ticks to 3.8% last month, lowered in part by previously furloughed federal workers being back on the job last month and no longer counted as unemployed. The drop in unemployment leaves the unemployment rate within its recent range. The prime-age (25-54) labor force participation rate is still up 0.4 points over the past year, which has helped to arrest the downward trend in unemployment even as job growth has been robust. The additional pool of labor has given the FOMC one more reason to be “patient” with further policy tightening.”