The Most Important Part of the February Employment Report

The February Employment Report is a positive for both stocks and Treasuries because it raises the possibility of strong economic growth without inflation.  While Payrolls were very strong, a jump in the Labor Force Participation Rate means that faster growth can be accommodated without undue stress on the supply side.  This is seen in the steady 4.1% Unemployment Rate. 

The most important part of the Report is the jump in the Participation Rate -- but it has to stay at this level if not rise further to be meaningful.   The Rate jumped to 63.0% from 62.7%, only the 3rd time in more than 3 years that it hit that level.  As a result, the Labor Force sped up to 1.5% (y/y) from 0.9% in January and is about 0.5% pt above what had been trend.  If this is the new trend in labor force growth, the US economy could surprise the Fed and other mainstream economists by being able to grow 3.0% on a trend basis. 

Trump's goal of 3% GDP Growth would only be possible (without inflation) if labor force or productivity growth picked up from their prior sluggish paces.  The greater Participation Rate raises the possibility that the pro-growth Administration policies are encouraging people to re-enter the labor force.   Fed Chair Powell in his testimony said he thought the prior flat level of the Participation Rate was a good sign, given the demographically-related downward pressure on the Rate.  A pickup in Productivity Growth is still uncertain.

The 0.1% m/m Average Hourly Earnings shows that the January jump in AHE was just a composition-related fluke.   The fall-back in the y/y to 2.6% from 2.8% (revised down from 2.9%) brings it back in line with the trends in other labor cost measures.  It shows no speedup in wage inflation.