US January NFP: Solid sign for income and growth - Wells Fargo

Analysts at Wells Fargo, point out that January’s NFP report showed a solid gain for jobs and wages supports household incomes and thereby consumer spending. The trend improvement in aggregate hours indicates more production and 2.5-3% GDP growth in 2018 according to their estimates. 

Key Quotes: 

“Nonfarm payrolls rose 200,000 in January with the three-month average at a solid 192,000 jobs. Job gains are consistent with 2.5-3.0 percent economic growth in the first half of 2018, with steady consumer spending, better business investment and a likely FOMC March rate hike with another one in Q2-2018.”

“Over the past three months, aggregate hours worked are up, consistent with continued growth in personal income, personal consumption and overall GDP growth.”

“Nominal average hourly earnings rose 0.3 percent in January and are up 2.9 percent over the year. While job growth remains strong, the gradual rise in earnings over the past six months signals higher incomes but also pressure on profits as firms have modest top-line pricing power (especially in the goods sector).”

“Longer term, the subdued inflation readings and weak productivity numbers have limited the gains in nominal wage growth (...) With both productivity growth and inflation continuing to prove sluggish, it is not altogether surprising that wage growth has disappointed given the performance of the fundamentals.”

“Quarterly annualized GDP growth rates of 3 percent are not out of the question; however, sustained growth of 3 percent should largely be written off if the labor force participation rate does not improve.”

“The overall labor force participation rate peaked in the early 2000s and trended sharply downward until 2016, where it has been relatively stable at just under 63 percent.”

“The unemployment rate held steady at 4.1 percent, its fourth consecutive month at this rate. We expect the unemployment rate to decline as employment growth outpaces growth in the labor force.”