US labor market conditions still strong but wage growth weak, Fed likely to resume hiking rates in June

The US Fed is expected to resume raising interest rates in June as employment is increasing at a rapid pace and slack in labor market is contracting. There is absence of a noticeable rise in wage growth; however, it will not bother the central bank when there are clear indications of acceleration in core price inflation.

Employment in February was better than forecast, as non-farm payrolls grew solidly by 242,000, while the growth in the previous two months were upwardly revised by 30,000. The manufacturing and mining sectors unexpectedly lost jobs, but they were countered by strong growth in private services. The US posted weakness in average hourly earnings that declined 0.1% m/m. The annual growth rate fell to 2.2% from 2.5%, whereas average weekly hours worked declined sharply to 34.4 from 34.6.

The drop of 10,000 in temporary employment in February was another weak disappointing factor. However, this has not been a major leading indicator of permanent employment changes in recent years.

The consumer survey indicates that employment grew majorly by 530,000 in February. This suggests that employment, in the last three months, grew over 1.5 million. In February, the labor force grew 555,000 and has also increase by 1.5 million in the past three months. This leaves the jobless rate unchanged at 4.9%. However, the participation rate increased sharply to a 15-month high of 62.9% in February from 62.7%. Meanwhile, the employment-to-population ratio increased to 59.8%, the highest since April 2009.

In all, labor market conditions in the US are still solid. However, the slow pick-up in wage growth is the only missing factor. But the US Fed sees a clear indication of acceleration in core price inflation. Hence, it cannot delay raising interest rates for a longer time.