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What to Make of the February Jobs Report

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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Although it isn't blemish-free, the "wow" jobs report released this morning confirms that the U.S. labor market is continuing an impressive, if not historic, favorable run.

The 295,000 gain in payrolls for February solidly outperformed the consensus expectation of 235,000 and the even lower “whisper” estimate of 220,000. This is particularly impressive when you take into account the range of recent headwinds confronting the U.S. economy, from disruptive weather to a relentlessly stronger dollar.

Even though wage growth remains too weak, the broad-based employment gains will translate into wider domestic momentum for the economy to expand. And it is only a question of time until wages respond, too. Meanwhile, the data will also induce the Federal Reserve to start raising rates by its September policy meeting at the latest, albeit in a gradual fashion. And there are notable market implications, particularly for the dollar.

QuickTake Monthly U.S. Jobs Report

February was the 12th straight month of job gains exceeding 200,000. Equally impressively, this report increases the three-month moving average to around 290,000. And all this is driven by an encouragingly broad-based pattern in which most sectors are participating in a dynamic labor market.

But the good news also included two notable qualifiers.

Wages remain sluggish, as average hourly earnings gained only 0.1 percent month-on-month, keeping annual growth at 2 percent. Second, the drop in the unemployment rate -- to 5.5 percent from 5.7 percent -- was driven by lower labor market participation.

Putting it all together, today’s jobs report has ramifications for both policies and markets. It provides further encouragement for the Fed to start raising interest rates by, or at, the September Federal Open Market Committee meeting. And in highlighting once again the divergent outlooks of the U.S. and the euro zone when it comes to both economic performance and monetary policy, the report will contribute to further dollar appreciation, an even wider gap between U.S. and German interest rates, and the short-term outperformance of European equities compared with U.S. ones. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor on this story:
Max Berley at mberley@bloomberg.net