February Jobs Report Preview: Could Cooler Labor Market Boost Expectations For Interest Rate Cuts?

The Bureau of Labor Statistics (BLS) will unveil the latest jobs report for February this Friday.

As a precursor to the BLS report, the Automatic Data Processing Inc. (ADP) released data this week showing a softer-than-expected private employment growth. In February, private employers added 140,000 jobs, a figure that fell short of the anticipated 150,000 mark.

February’s Jobs Report: What Economists Expects

• The consensus among economists anticipates an increase of 200,000 non-farm payrolls in February. This forecast comes from a survey of 67 economists, where predictions ranged widely from a low of 125,000 to a high of 286,000 jobs added.
• The unemployment rate is projected to hold at 3.7%, with estimates slightly varying between 3.6% and 3.8%.
• Average hourly earnings are anticipated to increase by 0.3% month-over-month, showing a deceleration from January’s 0.6% rise. Annually, earnings are expected to grow by 4.4%, slightly below January’s 4.5% increase.

Expert Forecasts: Divergent Views On Job Growth

• JPMorgan: Predicts a stable unemployment rate at 3.7% and an addition of 200,000 jobs in February. The analysis suggests a slowdown from January’s robust addition of 353,000 jobs, attributing the anticipated deceleration to seasonal adjustments and an increase in jobless claims. However, signs of a still-strong labor market are noted, with an expected decent contribution from the public sector and predictions of 160,000 new jobs in the private sector.
  
• Comerica: Forecasts a slowdown in job growth to 180,000 from January’s 353,000, with the unemployment rate potentially edging up to 3.8%. This forecast is based on an anticipated increase in labor force participation.
  
• Wells Fargo: Expects that the labor market’s momentum may have slightly waned, predicting a payroll rise of 195,000 in February. This expectation is slightly in line with consensus, with an anticipated unchanged unemployment rate at 3.7% and a modest 0.2% increase in average hourly earnings.
  
• ING Group: Believes that several indicators hint at a potential slowdown in the growth of non-farm payrolls. The decrease in the quits rate, alongside a contraction in the employment indices for both the manufacturing and service sectors according to the ISM, coupled with the ADP report showing a less-than-expected increase of 140,000 in private employment, signals a likely deceleration in the job market.

Interest Rate Expectations

Traders factor in about four rate cuts by the end of year, with the first to be delivered by June. CME Group’s FedWatch Tool currently shows a 73% market-implied probability for a rate cut by end of the first half of 2024.

On Wednesday, Fed Chair Jerome Powell stressed he needs to get more confidence on inflation moving back sustainably toward the Fed's 2% target before easing rates.

The S&P 500, as tracked by the SPDR S&P 500 ETF Trust SPY, trades near all-time highs at 5,130 at the opening bells on Thursday.

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Image created using artificial intelligence with Midjourney.