TD Ameritrade: Payroll Reports Could Ease Inflation Concerns

March 12, 2018 — 2:49 PM EDT

With concerns raging that the Federal Reserve could raise interest rates at a faster pace this year if inflation creeps up, investors got a bit of reprieve last week in the form of payroll numbers. Late last week, the February payroll numbers came out, showing that 313,000 jobs were gained during the month. The really good news from an inflation perspective is that there was mild wage growth despite the huge uptick in the number of jobs.

TD Ameritrade chief market strategist JJ Kinahan said that the payroll numbers lessen concerns that rising inflation will result in a more aggressive Federal Reserve. In what is known as a "Goldilocks" scenario, the economy was able to produce a lot of high-quality jobs without a big jump in wages that could spark new inflation fears, according to the market strategist at TD Ameritrade Holding Corporation (AMTD). What's more, Kinahan said in a blog post that the job growth was in areas that will please investors such as construction, manufacturing and professional services. Another positive piece of data from last week's payroll reports was an uptick in the labor participation rate, said the market strategist.

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"The jobs report is in the rearview, and earnings are basically over. Unfortunately, this isn’t a time to relax," wrote the strategist at the Omaha, Nebraska-based discount brokerage. "Investors might want to consider being careful this week because there could be a lot of intra-day volatility. Worries about rates could flare up, especially when there isn't much other news, and action could move back and forth quickly. The 10-year Treasury yield climbed back above 2.9% early Monday, VIX is back above 15, and the market might be a little fragile."

According to Kinahan, two key data points coming out this week include the consumer price index (CPI) and the producer price index (PPI) for February. The CPI results due on Tuesday and the PPI results on Wednesday are important to keep an eye on. After all, while the payroll numbers may have eased inflation worries, one number doesn't make a trend.

"No single data point tells the entire story, and that's why CPI and PPI are important to watch. In January, CPI rose a moderate 0.5%, but much of that was driven by surging energy costs. With energy and food stripped out, core CPI was up 0.3%, arguably a more manageable number," wrote Kinahan. "Apparel, transportation, and medical care costs were some of the bigger gainers, so it could be interesting to see if those higher costs persisted into February. Additionally, watch to see if core CPI can break out of a pattern in which it's grown either 1.7% or 1.8% year-over-year for the last eight months."