The state of the U.S. labor market and the outlook for the Federal Reserve will be the primary drivers for financial markets in the week ahead.
On Friday, the February jobs report is expected to show 200,000 jobs were created last month, a slowdown in the pace of job growth from January's unexpectedly strong reading that showed 517,000 jobs were added to the economy in the year's first month.
The unemployment rate is expected to remain steady at 3.4%, the lowest since 1969, according to data from Trading Economics.
Economists at Bank of America, led by Michael Gapen, wrote in a note to clients Friday that they "suspect some of [January's strong report] was noise and related to unseasonably warm weather." The firm estimates job gains were closer to 350,000 in January, a number still far stronger than expected but close to the average monthly job gains seen over the last six months.
Wage growth will also be a key focus of the jobs report, with average hourly earnings expected to rise 0.3% over the prior month and 4.7% over last year, with the annual figure an acceleration from the 4.4% gain seen last month.
Elsewhere on the economic calendar, Wednesday will hold the week's key data with ADP's monthly read on private payroll growth, the January report on job openings from the BLS, and the Fed's Beige Book all set for release.
A key question for investors in the coming weeks will be whether data from February corroborate the view that the U.S. economy accelerated in the early part of 2023 or whether strong reports prove to be one-offs.
Gapen's team, for its part, has consistently noted that elevated cost of living adjustments for Social Security beneficiaries — in addition to the aforementioned weather impacts on the labor market — likely boosted spending in January.
Investors will also have an eye on Washington, D.C. this coming Tuesday and Wednesday as Federal Reserve Chair Jerome Powell will speak before the Senate Banking Committee and House Financial Services Committee on Tuesday and Wednesday morning, respectively.
In the Fed's semiannual monetary policy report to Congress published Friday, the central bank affirmed its commitment to keeping rates elevated in an effort to bring down inflation, writing: "The Federal Reserve is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials. The Committee is strongly committed to returning inflation to its 2 percent objective."
The Fed also included a chart showing the three main inflation measures — goods inflation, services inflation, and services inflation excluding housing — that officials have emphasized in recent months.
"Core services price inflation remains elevated," the central bank wrote in its report. Noting that housing services prices have risen rapidly, the Fed wrote: "Because prices for housing services measure the rents paid by all tenants (and the equivalent rent implicitly paid by all homeowners)—including those whose leases have not yet come up for renewal—they tend to adjust slowly to changes in rental market conditions and should therefore be expected to decelerate over the year ahead."
The central bank continued: "In contrast, prices for other core services—a broad group that includes services such as travel and dining, financial services, and car repair—rose 4.7 percent over the 12 months ending in January and have not yet shown clear signs of slowing. Some softening of labor market conditions will likely be required for core services price inflation to abate."
On the earnings side, results from Ulta Beauty (ULTA), Dick's Sporting Goods (DKS), and BJ's Wholesale (BJ) will be highlights with investor focus remaining on the retail sector.
Last week, all three major averages rallied with the Nasdaq pacing gains, rising nearly 3% while the Dow and S&P 500 both logged weekly gains just shy of 2%. This coming as the 10-year Treasury note reached a four-month high during the week, eventually settling just below the 4% level as investors continue to brace for more rate hikes from the Fed.
Overall, the events this week should inform investors about the Fed's ongoing effort to raise interest rates in an effort to tamp down inflation.
"The February employment report and Fed Chair Jerome Powell’s testimony to Congress next week should give a clearer indication of whether recent talk of interest rates going 'higher for longer' is justified," wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics.
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Economic Calendar
Monday: Factory Orders, January
Tuesday: Wholesale Inventories, January; Federal Reserve Chair Jerome Powell testifies before Senate Banking Committee
Wednesday: MBA Mortgage Applications; ADP Employment Report, February; Balance of Trade, January; Job Openings and Labor Turnover Survey, January; Federal Reserve Chair Jerome Powell testifies before House Financial Services Committee; Federal Reserve Beige Book
Thursday: Challenger Job Cuts, February; Initial Jobless Claims
Friday: U.S. monthly jobs report, February
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Earnings Calendar
Monday: Lordstown Motors (RIDE); WW (WW)
Tuesday: Dick's Sporting Goods (DKS); Casey's General (CASY); CrowdStrike (CRWD); Manchester United (MANU); Sea Limited (SE); Stitch Fix (SFIX); Thor Industries (THO)
Wednesday: Campbell Soup (CPB); Brown-Forman (BF-B); Korn/Ferry (KFY); MongoDB (MDB); The Children's Place (PLCE); United Natural Foods (UNFI)
Thursday: Ulta Beauty (ULTA); Allbirds (BIRD); American Outdoor Brands (AOUT); BJ's Wholesale (BJ); DocuSign (DOCU); FuelCell Energy (FCEL); Gap (GPS); JD.com (JD); National Beverage (FIZZ); Smith & Wesson Brands (SWBI); Vail Resorts (MTN); Zumiez (ZUMZ)
Friday: The Buckle (BKE)
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