Stocks soared last Friday as the February jobs report showed 313,000 new jobs were added in February, blowing past economists projections for 212,000 new jobs. This is an extremely strong showing considering the unemployment rate is already near historical lows at 4.1%. Also, labor force participation grew 0.3% to 63%, its largest one month increase since 1983. Over 800,000 workers came back into the work force. This is a very positive development for the economy and one that should continue.
Almost 100,000 of the new jobs created were in construction and manufacturing. That continues a revival in those industries that has taken place over the past year.
Another key aspect of the jobs report was the growth in wages of 2.6%. The stock sell-off in February was initiated when the January jobs report was released and showed wage growth of 2.9%. This led investors to become concerned that higher wages would lead to a significant increase in inflation. A significant increase in inflation would lead to a quicker pace of rate increases by the Federal Reserve. The decline in wage growth from 2.9% in January to 2.6% in February should help ease the concerns about inflation.
The Federal Reserve's target inflation rate is 2% for the Personal Consumption Expenditures. Looking at the chart below it is notable that inflation has run well short of the Fed's target over the past 10 years.
Time will tell if investors really need to be concerned about rising inflation. For now the U.S. economy continues to show real strength with low inflation as the latest jobs report and Core PCE report confirms.