Another Hot US Jobs Report, But There Are Signs Of Cooling

Another Hot US Jobs Report, But There Are Signs Of Cooling
Paul Allison, CFA

12 months ago1 min

What just happened?

The US job market continues to flex. New data out Friday showed the economy added 311,000 jobs in February, once again well above consensus expectations. And that number is going to grab a lot of headlines today, but this latest look at the job market reveals some signs of weakness too.

The jobless rate, for one: it ticked up a little, to 3.6% from January’s 3.4%. And, average hourly earnings, for another: they were up, sure, but rose at just 0.2%, a slower pace compared to the month before.

What does this mean for markets?

The job market is still strong, despite its weak spots, and inflation has been cooling. If that trend continues, people may start to wonder if the US could possibly have its cake and eat it too: a strong job market and cooler inflation. The scenario is a rose-tinted one for sure, but stocks of all shapes and sizes will probably do well if it plays out. After all, we did have many years of low inflation and a strong labor market before the pandemic came along, so it’s not that far-fetched.

Now, the Federal Reserve (the Fed) is still worried that an overly tight labor market will mean more hefty wage increases to attract workers, more consumer spending, and a self-fulfilling spiral of runaway inflation. And today’s data is unlikely to have changed much there. So for now, it looks like the Fed’s so-called pivot toward gentler interest rate rises is probably going to turn into a pirouette, with a 0.5 percentage point interest rate rise in March now looking like an odds-on bet. And so it might still be a good idea to be wary of those investments that are more sensitive to higher rates: growth stocks, for example.

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