At first blush, the February nonfarm payrolls report, commonly referred to as the monthly "Jobs Report," was far weaker than any forecast. The Labor Department reported Friday that only 20,000 jobs were added last month. Economists had forecast 180,000.

Additionally, the unemployment rate fell to 3.8% while average hourly wages grew at annual rate of 3.4%. Strong numbers, to be sure; however, the headline number - that the U.S. economy only added 20,000 jobs - is what gets the most attention. But it may miss the point.

Perspective is Required

The report's calculation of the number of jobs added in a given month is messy to begin with. The data is based off of a survey of about 150,000 businesses and government agencies by the Labor Dept., which asks about their hiring during the past month. The Department then extrapolates from this data the headline number of total jobs added. It's not exact by any means. It is also revised at least once, often twice, in subsequent months as the Bureau of Labor Statistics synthesizes more data.

The number of jobs added can vary widely from month to month as well. In January, for example, the U.S. economy added 304,000 jobs. On a three-month average, payrolls have grown by 186,000, which is pretty strong for an economy that is strong, but slowing. Seasonality has something to do with it as well. There were far fewer leisure, construction and hospitality jobs added in February, which makes sense given that fewer people are traveling after the holiday breaks and winter weather always causes a slowdown in homebuilding. We also had a 35-day partial federal government shutdown, which not only affects government employees, but the businesses that support them and their families.

Focus on Wage Growth

Wage growth, which has been stubbornly slow for the past several decades, has been improving. That's obviously good for workers, but it's also a positive for consumer confidence. Average annual earnings grew 0.4% from January to February and 3.4% year-over-year.

Wage growth in retail, information, and leisure and hospitality sectors was especially strong. In this context, the overall labor market looks strong, according to John Lynch, chief investment strategist for LPL Research. “While payroll growth has slowed, jobs gains over the past few months have been unexpectedly strong...Labor market strength remains a bright spot in the U.S. economy, and wages are growing at a healthy pace.” Strong growth in is a good sign that there will be support for consumer demand this year, which will help the economy grow at a steady, albeit slower, rate.

What Comes Next?

The Federal Reserve is concerned about the health of the labor market and low inflation. While Fed Chair Jerome Powell has promised patience and backed off from potentially hiking interest rates in 2019, there is now debate forming as to whether the Fed might need to consider a rate cut in 2019.

While interest rates are historically low, the central bank is trying to keep the economy from sliding into a prolonged slowdown or a recession. The rate hikes in the second half of 2018 contributed to a correction in the major U.S. stock markets, which promptly reversed as the Fed backed off of plans for future hikes. According to the CME's FedWatch tool, there is now a 19.7% chance that the Federal Reserve will cut rates by the end of the year.