US nonfarm payrolls likely to expand by 200k in February – BMO CM

Michael Gregory, Deputy Chief Economist at BMO Capital Markets, is looking for nonfarm payrolls to expand by 200k in February and although slightly below January’s 227k print, this is still comfortably above recent average gains (3- and 6-months at 183k, 12-months at 195k), implying a pickup in the underlying hiring trend, and reflecting, in turn, the post-election surge in business optimism.

Key Quotes

“It will likely take a triple play of below-trend growth in payrolls, an uptick in the unemployment rate not driven by an uptick in the participation rate, and no acceleration in average hourly earnings to dissuade the FOMC from raising rates five days after. But, we expect opposites will occur on all three fronts, making the Fed feel even more confident about labour market conditions continuing to improve (thus, sealing the deal on a March 15th rate hike).”

“In the December-February period, the NFIB’s poll of small business hiring intentions averaged its highest level in more than a decade. This payrolls rise should translate into a one-tenth reduction in the jobless rate to 4.7%. There’s a chance this could remain at 4.8% if the participation rate drifts up a tenth to match its near 3-year high of 63.0%, which we suspect the FOMC is okay with. Finally, wage inflation should return to at least 2.7% y/y in February, from 2.5% in January, as what the Beige Book referred to as “tight” labour markets exert at least some modest upward pressure (+0.2% m/m) on average hourly earnings.”