The February employment report, released by the Labor Department this morning, was broadly strong, showing the economy added 295,000 jobs in February, helping to push the unemployment rate down to 5.5 percent. Other broader measures of unemployment rates fell as well. However, the participation rate also ticked down in February.
Wages did rise in February but the gains are still modest, rising 2.0 percent over the past twelve months.
The combination of jobs gains and higher wages pushed the aggregate weekly payrolls index, a proxy for take-home wages, up 0.3 percent for the month and 5.4 percent over the year. When viewed in combination with rising household wealth and improving consumer confidence, we expect ongoing gains in consumer spending.
We expect the Fed to continue to tilt to a gradual approach when removing support for economic growth, delaying the first rate hike as long as possible and then, raising rates at a gradual pace.
The combination of solid growth for the economy, low but steady inflation, and supportive monetary policy suggests a favorable outlook for bond and stock markets.