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The US economy added 275,000 jobs in February, beating forecasts, but a big downgrade to the total numbers for December and January fuelled expectations of an interest rate cut in June.
Non-farm payrolls figures published by the Bureau of Labor Statistics on Friday surpassed economists’ predictions of 200,000 new jobs in February.
But the BLS also downgraded the number for January from a blockbuster initial reading of 353,000 to 229,000, while December’s gain was cut by 43,000 to 290,000. It added that February’s unemployment rate rose to 3.9 per cent compared with 3.7 per cent the month before.
Traders reacted to the scale of the downgrades, with bond yields dipping and stocks ticking up. The futures market fully priced in a quarter-point interest rate cut for June, shifting forward expectations.
“The downward revisions to previous months’ gains leave recent growth looking less strong than previously thought,” said Capital Economics, a consultancy, in a note.
“Alongside the rise in the unemployment rate to a two-year high and a much weaker rise in wages, there is less reason now to be concerned that renewed labour market strength will drive inflation higher again.”
The two-year Treasury yield, which moves with interest rate expectations, dropped slightly, leaving it down 0.08 percentage points on the day at 4.43 per cent.
S&P 500 futures rose slightly, up 0.1 per cent.
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“The robust February payroll figure is more than offset by downward revisions to December and January, the rise in the unemployment rate and the low wage figure,” said Stephen Stanley, US economist at Santander Bank.
“Still, the overall picture in my view is that the labour market is still healthy.”
On Thursday, US Federal Reserve chair Jay Powell said the US central bank was “not far” from having the confidence to start lowering borrowing costs, as it awaited more concrete evidence that inflation is on track to hit the bank’s 2 per cent target.
But Wei Li, global chief investment strategist for BlackRock, said that the US labour market remained tight, arguing that the Fed would cut rates, “but not as soon or as early as the market has been expecting”.
She added: “A June start for cuts is our baseline expectation, with three cuts this year.”