Following Fed Chair Powell’s comments on Capitol Hill last Tuesday, there is a lot of expectation around the upcoming NFP figures. Powell essentially said that if economic data came in well above expectations, then there would be a 50bps hike at the next FOMC meeting. He stressed that the decision hasn’t been made yet (otherwise, why have the meeting?) But the potential for increasing the pace of hikes is definitely there, and the market has been pricing it in.
NFP are the first of the two major macroeconomic data points that are scheduled before the next Fed meeting. The other is Feb flash CPI, which will come out next week. Now, all the focus is on the jobs figures, particularly after ADP came in above expectations and JOLTs showed that there were more open jobs at the end of February than in January.
The consensus among analysts was that around 210K jobs were created in February, which would be in line with the last months of 2022. But it’s still down from the 517K number reported in January which more than doubled expectations. The unemployment rate, however, is expected to remain steady at the historic low of 3.4%.
There were a couple of factors that led to the surprise jobs number last time, and a couple of them might repeat this month, while others will not. In the latter category is the return of 74K government workers in California as part of a labor dispute resolution, which helped boost the NFP last time.
Why is the jobs market so good?
The surprise last time had more to do with technical adjustments than the total number of jobs created. More specifically, it’s not that more people got jobs; fewer than the normal amount of people lost their jobs. Particularly in the more populous areas of New England.
Normally, there is a loss of jobs in January as the holiday shopping comes to an end, and the weather causes a reduction in business activity. That is accounted for in the adjustment made by the BLS in preparing the NFP. But last January was an extraordinarily warm month, which means the ground in the northeast of the country didn’t freeze, and activities such as construction and drilling were able to continue.
What about February?
The weather in February was also unseasonably warm, but there was a major winter storm that affected the north and Western areas of the country. The two events could end up canceling out the weather impact on the jobs numbers.
The other thing is that last month already included the adjustment for seasonality, so there is unlikely to be another adjustment boost to the numbers this time around. And, given the large number in January, the prior month could also be revised lower, as typically happens with this way out of the mean results.