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Jobs report: Economists split on Fed's next move after strong February jobs report

On Friday morning, the Bureau of Labor Statistics announced 311,000 non-farm payroll jobs were added to the U.S. economy in February, beating expectations and suggesting continued strength in the U.S. labor market.

The unemployment rate also rose more than expected last month, increasing from 3.4% in January to 3.6% in February as labor force participation picked up.

Meanwhile, February's report also showed wage growth moderating, rising 0.2% last month compared to 0.3% in January.

Analysts flooded our inboxes with their takes on the report, with some arguing February's numbers indicate the economy is in for a soft-landing while others contend current job growth increases the odds the Federal Reserve will continue their hawkish campaign.

"The labor market cools from blistering to just plain hot. The moderation in job growth in February confirms that job gains in January were inflated by unusually warm weather and seasonal adjustment quirks." said Ryan Sweet and Nancy Vanden Houten, economists at Oxford Economics.

"However, the pace of job growth is surely still too rapid for the Fed's liking and won't stand in the way of the Fed continuing to push interest rates higher."

Federal Reserve Chair Jerome H. Powell testifies before a U.S. Senate Banking, Housing, and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, U.S., March 7, 2023. REUTERS/Kevin Lamarque
Federal Reserve Chair Jerome H. Powell testifies before a U.S. Senate Banking, Housing, and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, U.S., March 7, 2023. REUTERS/Kevin Lamarque

Here’s what other Wall Street strategists are telling clients following the report:

Mike Loewengart, Head of Model Portfolio Construction, Morgan Stanley Global Investment Office

"While payrolls remained hot, unemployment ticked up and wage growth was the slowest it has been since before the Fed started hiking rates. The market’s initial positive, although tepid, reaction may be a sign many investors believe the data was not enough to push the Fed to a 50-basis point hike."

Neil Dutta, Head of Economic Research, Renaissance Macro Research

"The labor markets are undeniably strong...Given the participation rate increase and slowing in wage growth (mostly a composition story) I can see why the soft-landing bulls are running with today's report, especially given the set up going in, but let's state the obvious, the Fed's work is not done. Terminal rates are still going up."

Bill Adams, Chief Economist for Comerica Bank

"The monthly increase in the unemployment rate and slower wage growth keep a quarter percentage point rate hike by the Fed the most likely outcome of their March interest rate decision. But it’s a finely balanced call that will depend on whether inflation surprises to the upside again in next week’s CPI report."

Kathy Bostjancic, Chief Economist, Nationwide

"The Fed can take comfort in the rise in the supply of labor and the easing of upward pressure on wages to maintain a 25bps rate increase. However, the February CPI report will also weigh heavily in the Fed’s deliberations of whether to raise rates 25bps or 50bps. Another rapid rise in consumer inflation could tip the scales towards 50bps."

Sarah House, Michael Pugliese, Senior Economists, Wells Fargo

"Even with February's increase in the unemployment rate, the labor market remains incredibility tight. While we expect hiring to slow more markedly from here, there remains plenty of scope for the jobs market to weaken before concerning the Fed. We expect the FOMC to remain in tightening mode awhile yet, with the bar for a 50 bps hike at the upcoming March meeting looking somewhat higher after today's report showing some easing of inflation pressures coming from the jobs market."

Christopher S. Rupkey, Chief Economist, FWDBONDS LLC

"Net, net, coming up on the one-year anniversary of the Fed’s first rate hike, we never thought we would see the economy churning out 311K more jobs this month. The party is on and the labor market is having a blast. The economy clearly is not landing, it is soaring. The Federal Reserve has more work to do as interest rates are not restrictive enough to slow the economy outside of the residential housing markets."

Ian Shepherdson, Chief Economist, Pantheon Macroeconomics

"In one line: Enough softness to reduce the odds of 50bp this month...The report will not stop the Fed hiking in March, though it does lower the odds of a 50bp increase, if we’re right about next week’s activity data and the CPI/PPI reports - also due next week - being better than in January. That is our base case, so we’re sticking to our 25bp forecast.

A further hike in May still seems likely, but we think the Fed is about to add extra hikes to its forecasts just at the point when the data will clearly tell them that further increases are unnecessary. The first hike was only a year ago; the idea that policymakers now can say definitively that that they have not done enough is very odd, given that wage growth - which is what really matters in the employment report - is headed to a sustainable pace. It might already be there."

Gina Bolvin, President of Bolvin Wealth Management Group

"The Fed is backed into a tighter corner after yesterday’s SVB caused fear of a contagion risk that extended to the entire sector. It’s something the Fed will watch very closely."

John Lynch, Chief Investment Officer for Comerica Wealth Management

"Perhaps the best news from this report was the easing of wage pressures to +4.6% year-over-year. Since the Fed has been most focused on terms like 'super core' and 'sticky' price pressures, a drop in the largest costs for businesses is a welcome development. Nonetheless, 50-basis points is still on the table for the March policy meeting, given recent economic strength and dependent on next week’s CPI report."

Paul Ashworth, Chief North America Economist, Capital Economics

"While the above-consensus 311,000 increase in payroll employment last month confirms that the super-sized 504,000 gain in January wasn’t just a seasonal distortion, the rest of February’s report will provide some comfort to the Fed – with the unemployment rate rebounding to 3.6%, from 3.4%, average weekly hours worked dropping back and average hourly earnings increasing by a muted 0.2% m/m...We still think the Fed will stick with a 25bp increase, but acknowledge that, after Powell’s hawkish testimony this week, it’s a very close call."

Quincy Krosby, Chief Global Strategist, LPL Financial

"To be sure, next week's CPI and PPI reports, should they come in hotter than expected, could push the 50 basis point bet higher, but this morning's print gives the Fed breathing room as it also needs to focus on the extent of damage spilling over from the Silicon Valley Bank shocking headlines."

Gregory Daco, Chief Economist at EY-Parthenon, Ernst & Young LLP

"Our view, however, is slower job growth in the goods sector, easing hours worked and moderating sequential wage growth momentum and a rise in the labor force participation rate indicate a welcome easing of labor market tightness. While we acknowledge this report was by no means a weak one, we also observe that some of the job gains were in sectors where there has been a structural employment shortfall – healthcare and education in particular."