February Jobs Numbers Fall Far Short Of Expectations
Job growth in February was far below estimates, but we did see some solid wage growth and other signs that we're approaching what economists refer to as "full employment."
With reports that economic growth may be slowing, many Wall Street traders, politicians, and analysts have been looking to the Jobs Report to give us an idea on where the economy might be headed, at least in the short-term. After a 2018 that saw solid, albeit not spectacular jobs growth, the question that many have raised is whether we’ve entered a new phase of “full employment” where jobs growth would slow down somewhat as employer and employees both assess that we’ve reached a point where new job opportunities are going to be rarer than they were when the post-Great Recession recovery was still young. Additionally, many analysts have turned their attention away from the employment numbers themselves and are paying attention to wage growth, which has remained somewhat stagnant in a range of 2.5% to 3.0% annual growth for the past several years. The new year, though, seemed to open with a bang thanks to a much better than expected January jobs report that defied even being impacted by the five-week government shutdown that did not end until late January.
January’s jobs report, of course, was very strong and heading into today’s release of the numbers for February analysts were expecting a net jobs gain of roughly 175,000 jobs, with the topline unemployment rate remaining steady. What we got was a number that was far below those estimates and quite disappointing at that:
Total nonfarm payroll employment changed little in February (+20,000), and the unemployment rate declined to 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Employment in professional and business services, health care, and wholesale trade continued to trend up, while construction employment decreased.
The unemployment rate declined by 0.2 percentage point to 3.8 percent in February, and the number of unemployed persons decreased by 300,000 to 6.2 million. Among the unemployed, the number of job losers and persons who completed temporary jobs (including people on temporary layoff) declined by 225,000. This decline reflects, in part, the return of federal workers who were furloughed in January due to the partial government shutdown. (See tables A-1 and A-11.)
Among the major worker groups, the unemployment rates for adult men (3.5 percent), Whites (3.3 percent), and Hispanics (4.3 percent) decreased in February. The jobless rates for adult women (3.4 percent), teenagers (13.4 percent), Blacks (7.0 percent), and Asians (3.1 percent) showed little or no change over the month. (See tables A-1, A-2, and A-3.)
In February, the number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.3 million and accounted for 20.4 percent of the unemployed. (See table A-12.)
The labor force participation rate held at 63.2 percent in February and has changed little over the year. The employment-population ratio, at 60.7 percent, was unchanged over the month but was up by 0.3 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment was little changed in February (+20,000), after increasing by 311,000 in January. In 2018, job growth averaged 223,000 per month. In February, employment continued to trend up in professional and business services,
health care, and wholesale trade, while construction employment declined. (See table B-1.)
In February, employment in professional and business services continued to trend up (+42,000), in line with its average monthly gain over the prior 12 months.
Health care added 21,000 jobs in February and 361,000 jobs over the year. Employment in ambulatory health care services edged up over the month (+16,000).
In February, wholesale trade employment continued its upward trend (+11,000). The industry has added 95,000 jobs over the year, largely among durable goods wholesalers.
Employment in construction declined by 31,000 in February, partially offsetting an increase of 53,000 in January. In February, employment declined in heavy and civil engineering construction (-13,000). Over the year, construction has added 223,000 jobs.
Manufacturing employment changed little in February (+4,000), after increasing by an average of 22,000 per month over the prior 12 months.
In February, employment in leisure and hospitality was unchanged, after posting job gains of 89,000 and 65,000 in January and December, respectively. Over the year, leisure and hospitality has added 410,000 jobs.
Employment in other major industries, including mining, retail trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for December was revised upward .from +222,000 to +227,000 and the number for January was revised downward from +304,000 to +311,000. These revisions made for a net upward revision of +12,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +186,000 net jobs created per month, a decrease from where the three-month average stood last month. Based on these revisions for December, we saw a total of 2,024,000 new jobs created in 2018 as a whole for an average of +169,083 net new jobs per month in 2018, which is a slight increase from where we stood last month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 3,479,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +135,018 new jobs created, which is a decrease from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration. Finally, in 2019 itself we have seen 331,000 jobs created, for an average of +165,500 jobs created per month so far this year.
During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly twelve and one-half years to reach that goal. Based on the average for 2018 to date, it would take roughly ten years to reach the goal. Based on the average jobs growth for the year to date, it would also take roughly twelve years to reach that goal. Based on the average for the past three months, it would also take roughly ten years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was decreased slightly to 34.5 hours while average hourly earnings rose 11 cents to $27.86. Over the year, average hourly earnings have risen at an annualized rate of 3.4%. This is a stronger wage growth number than we’ve seen in recent months, and it’s consistent with the increase we saw last month but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip. As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Also on the positive side is the fact that labor force participation rose while long-term unemployment dropped significantly is a positive sign that more people are entering the jobs market on the belief that there’s more opportunity out there.
Heading into the new year, there were concerns that the economy might be slowing down, but those concerns were largely put to the side after January’s jobs numbers came back stronger than analysts had estimated. Even the Federal Government shutdown, which was going on for the As The New York Times notes, though, this relatively weak report raises questions once again:
January’s payroll gains were exhilarating. February’s numbers were disappointing. Together they offer a potent reminder that each monthly employment report from the Labor Department captures just a moment in time. Longer-term trends are what matter, and the streak of job growth continues to set records.
Still, as Carl Tannenbaum, chief economist of Northern Trust in Chicago, said: “This is a disappointing report. I don’t think there’s any way to sugarcoat it.” Rising wage growth is good for workers, but combined with soft payroll growth, he said, “it’s a signal we need to be cautious with the U.S. economic outlook.”
“The disappointing report on payrolls will add to other disappointing reports for the first quarter,” Mr. Tannenbaum added.
The sluggish job growth was in stark contrast to the two preceding months, both of which look even stronger after revisions announced on Friday. January’s gains were revised to 311,000 and December’s final estimate was 227,000.
There have been several instances over the course of this expansion when average monthly job gains fell below 100,000. In September 2017, for example, employers added just 18,000 jobs, but the monthly average for the year still reached 179,000. In 2016, the monthly average was 193,000 despite a January reading of 90,000.
Diane Swonk, chief economist at the accounting firm Grant Thornton, pointed to several possible reasons for February’s anemic jobs growth. “Manufacturing has been weak, and there was lousy weather across the country,” she said. “That’s still disruptive.”
Some of the layoffs that big retailers have announced may also be starting to trickle through.
The labor reports so far this year could still reflect some of the confusion and delays prompted by the 35-day partial government shutdown. Furloughed federal workers and affected contractors had to scrounge for part-time work when their paychecks were halted. Those circumstances were reflected in January’s report, which showed that the number of workers who snagged part-time jobs for economic reasons jumped by nearly half a million and those temporarily unemployed rose by roughly 175,000.
“They now have paychecks and don’t need to drive Uber to make ends meet,” Ms. Swonk said.
The shutdown also postponed hiring both within the government and in the private sector, in part because the federal electronic service that verifies the employment eligibility of prospective workers — E-Verify — was not operating. Some of those hires, particularly in the public sector, may still be in the pipeline.
Delays in income-tax refunds may also have had an impact, if people held off with discretionary purchases, Ms. Swonk said.
Nominal wage growth has been picking up. The gains, buoyed in part by increases in the minimum wage in several states, have tended to benefit the bottom rung of the wage ladder. “There’s been a lot of wage growth at the low end, but it has not been trickling up like it once did,” Ms. Swonk said. To cut costs, she said, large employers in the online-retail sector have trimmed the number of higher-paid managers and their wage levels.
While these numbers are disappointing, there’s still plenty of evidence for optimism:
“I’ve been in this business over 40 years, and February always presents kind of a pause,” said William H. Stoller, chairman and chief executive of Express Employment Professionals, which is based in Oklahoma City. He compared it to taking a breath during a marathon, before a second wind kicks in. “I don’t see it hitting the wall at all at this point,” he said.
Signs of employer confidence popped up in various places outside of the government’s report. One was the growing willingness to convert temporary workers into full-time staff members, said Bill Ravenscraft, a senior vice president at the staffing firm Adecco. The high rate of conversion shows there is little concern that layoffs will be needed down the road, he said, and signals confidence in the economy that is not limited to one skill set or industry.
With job postings outpacing applicants, Adecco has started to offer daily pay to lure more people into the pool of potential workers. Many job seekers can’t wait two weeks for the paychecks, Mr. Ravenscraft said. Now “if you log eight hours that day, you get paid for it.”
Surveys reflect the optimism. Of the 681 employers surveyed last month by Vistage, an association of small-business owners and executives, nearly 60 percent said they planned to increase their total staff over the next 12 months. That share is down from last year, said Joe Galvin, Vistage’s chief research officer, but is still strong.
The hunt for workers has given job seekers more choices. A gap between more desirable and less desirable jobs on the lower-wage end is emerging, said Julia Pollak, a labor economist at ZipRecruiter, an online employment marketplace.
The Wall Street Journal, meanwhile, attributes the low jobs number to employer’s increasing difficulty in finding qualified employees for open positions:
WASHINGTON–The unemployment rate ticked down in February but hiring growth slowed significantly, a sign employers could be struggling to find workers as the labor market tightens.
U.S. nonfarm payrolls rose a seasonally adjusted 20,000 in February, the Labor Department said Friday. The unemployment rate, a seasonally adjusted 3.8%, was down from 4.0% a month earlier.
Economists surveyed by The Wall Street Journal had expected 180,000 new jobs and a 3.9% unemployment rate in February.
Some of the pullback in February hiring was likely payback after back-to-back months of strong job gains. Revised figures show employers added 311,000 jobs in January and 227,000 in December, a net upward revision of 12,000.
A tighter labor market, in theory, should also translate into faster wage growth, as employers compete for scarce labor. Friday’s report showed that is materializing: Wages rose 3.4% from a year earlier in February, a pace last matched in April 2009.
Average hourly earnings for all private-sector workers increased 11 cents last month to $27.66.
Elsewhere, the broadest measure of unemployment, including those too discouraged to look for work, plus Americans who are in part-time jobs but want to work full-time, fell to 7.3% from 8.1% the prior month. The Labor Department said that decline, which followed a sharp increase in January, may have resulted from the partial federal government shutdown.
The report showed jobs were lost in construction, mining and retail last month. Meanwhile, business-services and health-care companies expanded payrolls solidly. Manufacturers also added on workers last month.
The labor-force participation rate, or the share of Americans working or looking for a job, held steady at 63.2% in February. That is up slightly from 63.0% a year earlier.
It’s possible that another reason for the disappointing numbers in February could be related to a number of factors, none of which are indications that the economy is headed for a slowdown. For example, the pullback could be something of a return to the mean after January strong number in that employers went on something of a hiring spree at the start of the year only to pull back the following month while they wait to see where the economy is headed. Additionally, the number could have been impacted by the fact that the end of the government shutdown meant that Federal employees who may have been spending their time on furlough working at second jobs to make ends meet and that they left those positions after the shutdown ended. Finally, this number, combined with the spike in wage growth we have seen over the first two months of the year could mean that we’re reaching the point of peak employment, meaning that there are fewer potential workers chasing more jobs. The fact that wages are finally on an uptick is another sign that this may be the case. If it’s true then what we can expect in the future is smaller jobs growth numbers and better wage growth. Whether that manifests itself remains to be seen.