Is the US labor market rolling over?

Late cycle...

Is the US labor market finally rolling over?

Well, maybe, but it's probably too early to say.

A key narrative of recent times was that as the US continually hiked interest rates other parts of the world, including Australia, would feel pain. 

Now it looks doubtful that there'll be any more hikes in this cycle, as the Fed turns increasingly pessimistic. 

In fact, after today's significantly weaker payrolls result there is increasing talk of a looming contraction, and markets are pricing about a one in four chance of rates instead being cut this year. 

Nonfarm payrolls increased by only +20,000 in February 2019, which was a big miss against market expectations of +180,000. 

That said, after mildly positive revisions the preceding two months added +538,000 to payrolls, so some context is due.

The 3-month average gain of +186,000 was the weakest in the 15 months since November 2017...but hardly weak either. 

Initial jobless claims have been rising recently, there was a government shutdown, and poor weather in February may also have been a contributory factor. 

Earnings strength

The unemployment rate fell by 0.2 per cent to 3.8 per cent in February, though it does looked to have bottomed out for the cycle. 

On the other hand, average hourly earnings were up +3.4 per cent over the year, which is by far the strongest annual increase of the expansion to date, and well ahead of core inflation of +2.2 per cent. 

The wrap

No firm answers here - after all, it rarely pays to read too much into one weak result - but it's possible that this signifies a turning point for the US expansion. 

Perhaps it wouldn't be too much of a surprise after an unprecedented 101 consecutive months of employment growth, and 75 months of real earnings growth. 

But for now the trend holds.