February Payrolls: The Good Old Days
We all knew there were two scenarios heading into the February jobs report, and in a sense we waltzed through the upside scenario pretty much as predicted. Still, the numbers were well north of any serious forecasts and it’s easy to forget that this stronger-than-expected report was hardly an obvious outcome, after some recent mixed signals. Clearly, the February jobs report provides healthy baseline vital statistics for the US labor market heading into the Covid-19 coronavirus outbreak.
- Payroll growth jumped to 273k, with a combined 85k in upward revisions to prior months (more than half of which in the already-strong January report), bringing the 3-month average to 243k (from a previously reported 211k).
- Unemployment ticked back down to 3.5%, but amid a smaller labor force and higher under-employment.
- Average hourly earnings up 3.0% over the last twelve months (0.3% on the month). Six months after a cycle-high of 3.5%, wage growth truly stalled out, and it doesn’t look likely to accelerate in the months ahead.
- Surprising strength: The much-discussed decline in job openings was nowhere to be seen, January payrolls were revised up 48k (in contrast to ADP), for a combined 85k in upward revisions. The average workweek ticked up from 34.3 hours to 34.4 hours.
- This confirms the other stronger-than-expected signs from early Q1 US data, which have left the Atlanta and NY Fed’s GDP nowcasts north of 2%, although the universal expectation is that GDP will slow substantially as data that reflect the coronavirus impact eventually get gathered and published. It’s a testament to the speed of the coronavirus crisis that even the nowcasts are considered way behind. This underlines how the slowness of traditional economic indicators is one of the major reasons for interest in alternative sources of data.
- Some not-so-good news in the household survey: Unemployment declined for a bad reason, with the labor force shrinking, and the reasons for unemployment all discouraging. Also, despite the decline in unemployment, part-time work and the under-employment rate ticked up. Part-time work rose 136k and the under-employment ticked back up to 7.0%, from 6.9%; that somewhat undercuts the rise in the workweek (from 34.3 hours to 34.4 hours), but the establishment survey is considered more reliable and less susceptible to sentiment effects than the household survey.
- Industry breakdown:
- Manufacturing swung to a gain (15k vs. -20k), and its diffusion index (54.6 vs. 47.4) indicated the strength was broad-based across the sector.
- Construction as just blistering with the benefit of unseasonably warm weather. Last three months 42k, 49k, and 16k.
- Healthcare may have already been staffing up in early February. Their payroll growth accelerated from 25k in Dec. to 57k in Feb.
- Leisure & hospitality: at least they made hay while the sun was shining, averaging 43k over the last three months, in a tight range of just 13k. Darker days ahead there, that’s for sure.
- Decline in temp services (-3k vs. -3k) could be a sign of softening, but that’s not a super-reliable sign… and at this point we’ve got a lot more to worry about than a slump in job openings. Still, the few soft spots are worth noting.
- Declines across retail trade, wholesale trade, and transportation/warehousing (all less than 10k): tempting to read this as an early sign of coronavirus fears, but retail has been ailing, and transportation/warehousing has been volatile.
- Fiscal response from the private sector? While politicians and wonks debate unemployment insurance, the private sector is already rolling out *under-employment insurance*. Per Mark Crowley: “US grocery chain, Trader Joes is the first company to temporarily change its sick leave policy in light of the Coronavirus. To encourage workers to stay home when ill, all employees regardless of tenure & full-time or part-time status will be paid for their time off.”
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