US non-farm payrolls likely grew in February, consistent with healthy labor market improvement

US jobs report for February is likely to indicate that the economy continues to weather headwinds from the financial market volatility and slow global growth that dominated the start of 2016. However, the threats are significant as certain indicators indicate a sharp deceleration in job growth.

"We expect a 175k gain in nonfarm payrolls in February after the 151k rise in January. Although our forecast is weaker than the 195k consensus forecast, it is consistent with continued healthy labour market improvement, says Nordea Bank".

More payback is expected from the average monthly increase of 279k in payrolls in Q4 as temperatures have gone back closer to seasonal norms after warmest Q4 on record. There are some mixed signals for payrolls growth for February from indicators. Jobless claims and the NFIB hiring intention index indicate towards strong job growth, but the  two ISM employment indices, which are both below the 50-threshold, suggests considerable risks on the downside to Nordea Bank's below-consensus forecast of 175k.

With the US Fed official's recent estimates of how many jobs are required to keep unemployment steady, ranging between 7k and 150k, anything more than a 150k increase in payrolls will almost be a sign of continued labor market rebound for the Fed, increasing the chance of raising interest rate.

"Assuming a roughly flat participation rate, we estimate that the "break-even" rate of payroll growth - the rate needed to keep the unemployment rate unchanged - is about 125k per month", says Nordea Bank.

However, if the downtrend in the labor for participation rate in the past two years is sustained, the "break-even" rate will be as low as 70k.

"We expect the unemployment rate to remain at 4.9%, the 8-year low reached in January and spot on the median FOMC projection of the NAIRU. We forecast a 0.2% rise in average hourly earnings after the surprisingly strong 0.5% gain in January", says Nordea Bank.

The consensus expectation for the unemployment rate is also 4.9%. The growth rate in average hourly earnings year-on-year is likely to rise to 2.6% from 2.5% in January. This will support the US Fed's view that the economy is functioning close to full employment. However, there are downward threats to forecasts because of likely distortions from calendar effects.