February Jobs Report Raises Questions

By Robert Hughes

U.S. nonfarm payrolls added just 20,000 jobs in February, well below the consensus expectation of 180,000 and the smallest monthly gain since September 2017 (when just 16,000 jobs were created, reflecting the impact of Hurricanes Harvey and Irma). The prior two months showed very strong gains of 311,000 and 227,000 for January and December, respectively. The three-month average from December to February was 186,000, a solid performance.

Private payrolls added 25,000 in February following revised gains of 308,000 in January and 224,000 in December (see bars in chart). Those result in a three-month average of 186,000. Over the past year, the monthly gain for private payrolls is 202,000 (see chart). Since 2012, the 12-month average gain has ranged between 150,000 and 250,000, putting the last 12 months in the middle of the range. Despite the monthly volatility, job creation appears relatively healthy.

However, when evaluated in the context of weaker housing data for starts, permits, and sales and disappointing retail-sales data in recent months, the sudden drop in job creation becomes a bit more worrisome. Furthermore, the AIER Leading Indicators index fell below 50, to a reading of 42 in the most recent month, reflecting a broadening in weakness across several areas of the economy. Coinciding with the weaker data were the government shutdown and some periods of harsh weather, both of which can have significant, though mostly temporary, impacts on economic activity. Overall, the preponderance of data suggests a higher degree of caution is warranted, but it is still too early to expect a recession in the coming months or quarters. The most likely path remains continued economic expansion.

Within the 20,000 gain in jobs, goods-producing industries lost 32,000 employees in February, below the average gain of 43,000 over the past year. Durable-goods manufacturing was the only segment of goods-producing industries to show a gain, adding 5,000 jobs. Construction led the way on the downside, losing 31,000 jobs following a surge of 53,000 new jobs last month. The 12-month average for construction industries is 19,000. Mining and logging industries lost 5,000 jobs while nondurable-goods manufacturing fell by 1,000.

For private service-producing industries, which typically account for the lion’s share of job creation, payrolls added 57,000 workers, led by a 42,000 increase in professional and business services. Health care and social-assistance industries added 23,000, and wholesale-trade industries added 11,000. Retail lost 6,000 workers while transportation industries shed 3,000. Leisure and hospitality payrolls were unchanged in February after averaging 34,000 a month over the past year. The public sector shed 5,000 employees.

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The unemployment rate fell to 3.8 percent and the participation rate held steady in February at 63.2 percent. The unemployment rate is just 0.1 percentage points above the 3.7 percent cycle low from November 2018 and the second-lowest since 1969. The participation rate remains well below the 66.0 to 67.0 percent rate that prevailed from 1988 through mid-2008.

Average hourly earnings rose 0.4 percent in February, resulting in a 12-month gain of 3.4 percent, the highest since 2009. Gains in average hourly earnings have been below gains in previous cycles, but the growth rate has been slowly drifting higher since 2015. The average length of the workweek decreased by 0.1 hours to 34.4 hours in February. Average weekly hours have been bouncing around between 34.3 and 34.6 hours since 2012.

Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.1 percent in February and is up 5.1 percent from a year ago (see chart). This aggregate measure has posted relatively steady year-over-year gains in the 3.5 to 5 percent range since 2011. The index has posted year-over-year gains above 5 percent for 10 consecutive months.

The weak jobs report for February raises concerns over the strength of the labor market. There’s enough evidence to suggest that the labor market remains solid and that February is an outlier, but caution is warranted.


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Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

This article was sourced from AIER.org


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