The stock market entered Friday morning in a reasonably good mood, comforted somewhat by the resurgence of the energy stocks in Thursday's late action, which suggested to some that this bull market may not be ready to roll over and play dead just yet. The S&P futures, without any "new" news drivers, were up nine points and trading 0.6% above fair value.
They have padded those gains after the release of the February Employment Situation Report, which was strong on all key headline fronts. The S&P futures are currently up 12 points and are trading 0.7% above fair value.
The nonfarm payrolls increase and the unemployment rate will steal the headline show in the newspapers, but really, it is the increase in average hourly earnings that provided the "drop the mic" moment.
Average hourly earnings increased 0.2%, leaving them up 2.8% year-over-year and solidifying the prevailing belief that the Federal Reserve will raise the target range for the fed funds rate at its March 14-15 FOMC meeting.
That is the key takeaway from this report, followed closely by the encouraging understanding that the labor market is strengthening, which is aiding the prospects for stronger economic growth.
The notable headlines from the Employment Situation Report are as follows:
- February nonfarm payrolls increased by 235,000 (Briefing.com consensus 188,000). Over the past three months, job gains have averaged 209,000 per month.
- January nonfarm payrolls revised to 238,000 from 227,000
- December nonfarm payrolls revised to 155,000 from 157,000
- February private sector payrolls increased by 227,000 (Briefing.com consensus 185,000)
- January private sector payrolls revised to 221,000 from 237,000
- December private sector payrolls revised to 150,000 from 165,000
- February unemployment rate was 4.7% (Briefing.com consensus 4.7%) versus 4.8% in January
- Persons unemployed for 27 weeks or more accounted for 23.8% of the unemployed versus 24.4% in January
- The U6 unemployment rate, which accounts for both unemployed and underemployed workers, decreased to 9.2% from 9.4% in January
- February average hourly earnings increased 0.2% (Briefing.com consensus +0.2%) after increasing an upwardly revised 0.2% (from 0.1%) in January
- Over the last 12 months, average hourly earnings have risen 2.8% versus 2.6% for the 12-month period ending in January
- The average workweek in February was 34.4 hours (Briefing.com consensus 34.4), versus 34.4 hours in January
- February manufacturing workweek was unchanged at 40.8 hours
- Factory overtime was unchanged at 3.3 hours
- The labor force participation rate in February was 63.0% versus 62.9% in January
The fact that the unemployment rate went down while the labor force participation rate went up supports the notion that the labor market is strengthening as the number of employed workers increased by 447,000 while the number of unemployed workers decreased by 107,000. The employment-to-population ratio, in turn, increased from 59.9% to 60.0%, which is the highest ratio since February 2009.
Employment is generally regarded as a lagging indicator, yet today's report is the coincident indicator the stock market was seeking to corroborate its leading view that the Federal Reserve will be raising the fed funds rate soon for the right economic reasons.