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U.S. nonfarm payrolls are expected to rise 195,000 in February, according to a median estimate of economists polled by Bloomberg. However, recent data suggest even bigger gains may be on the way.

On Wednesday, payrolls processor ADP Inc. said U.S. private sector employers added 298,000 workers last month, exceeding analysts’ estimate by more than 100,000. It was also the strongest month of private job creation in nearly three years.

The ADP report showed a sharp rise in manufacturing employment, a sign that domestic producers were benefiting from improved global demand. Hiring in factories rose 32,000, the most in nearly five years. Construction jobs also surged 66,000, the most in 11 years.[1] Employment also accelerated in the larger services sector, which includes everything from professional services to health and education.

In general, the results of the ADP report track relatively closely with the official nonfarm payrolls data.

Last week, the Labor Department said initial jobless claims plunged to nearly 44-year lows at the end of February, offering further evidence of a robust jobs market. The number of Americans filing for first-time for state unemployment benefits fell 19,000 to a seasonally adjusted 223,000 in the week ended February 25. The four-week average for claims, which smooths out volatility, fell to its lowest level since April 1973.[2]

These figures lead some market participants to conclude that February nonfarm payrolls growth could be higher than the median estimate, perhaps as high as the upper end of Bloomberg’s range (220,000). In January, the U.S. economy created 227,000 jobs, which was much higher than the median estimate calling for 175,000.

The NFP report will also include fresh data on the unemployment rate and average hourly earnings. Bloomberg economists expect the unemployment rate to dip 0.1 percentage point to 4.7%. Average hourly earnings are expected to pick up 0.3%, following a January gain of 0.1%.

A stronger jobs recovery has boosted the Federal Reserve’s outlook on the economy. Combined with rising inflation in the wake of Donald Trump’s election, robust jobs data signal the U.S. economy is prepared to absorb higher interest rates. As of Wednesday, Fed Fund futures prices implied a nearly 91% likelihood of a rate hike at the upcoming March 14-15 Federal Open Market Committee (FOMC) meeting.[3]

Next week’s rate announcement will be accompanied by quarterly projections for GDP, inflation and the unemployment rate. The report will also include the Fed’s ‘dot-plot’ summary of interest rate expectations.

The February nonfarm payrolls report will be released Friday, March 10 at 8:30 a.m. ET. It is arguably the most closely watched economic calendar event of the month.

 

 

[1] Patricia Laya (March 8, 2017). “ADP Says Companies in U.S. Hired the Most in Almost Three Years.” Bloomberg.

[2] Paul Davidson (March 2, 2017). “Jobless claims at 44-year low as labor market tightens.” USA Today.

[3] CME Group. FedWatch Tool.

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