Orlando's Outlook: Solid jobs report for February
Bottom line Employers shrugged off tepid fourth-quarter economic growth, weak consumer spending, higher taxes and a reduction in government spending last month to produce a stronger-than-expected employment report. But our leading employment indicators—including initial weekly jobless claims and the ADP survey—were all pointing to developing strength in nonfarm payrolls, which is why our forecast here at Federated was 32,000 jobs ahead of consensus. Today’s report, however, blew away even our more optimistic assessment, with particular strength in household employment and construction, and the lowest rate of unemployment in five years.
Nonfarm payrolls leap higher February surged by 236,000 jobs, which was much stronger than consensus estimates for a gain of 165,000 jobs and our own more aggressive Federated forecast for an increase of 197,000 jobs. But the Bureau of Labor Statistics (BLS) did revise December and January results slightly lower by a combined 15,000 jobs. December’s preliminary gain of 155,000 nonfarm jobs, which was revised up to a stronger gain of 196,000 jobs last month, was revised up again to a final gain of 219,000 jobs. But January’s preliminary increase of 157,000 jobs was revised sharply lower to a gain of only 119,000 jobs.
Private payrolls strong, too February leapt by 246,000 jobs, which was surprisingly stronger than the consensus forecast for a gain of 170,000 jobs, although the BLS did collectively revise December and January down by a modest 4,000 jobs. December’s preliminary increase of 168,000 jobs, which was revised up to a gain of 202,000 last month, was revised up again to a final gain of 224,000 jobs. But January’s preliminary gain of 166,000 was revised down to a softer gain of 140,000 jobs.
Household survey soars February’s rebound to 170,000 jobs was light years better than January’s disappointing reading of 17,000 and December’s uninspiring 28,000 household jobs. The household survey is an important leading employment indicator for both nonfarm and private payroll growth.
Construction surges, while manufacturing remains solid Due to the continued strength in housing and early repair work from Sandy, construction added a strong 48,000 jobs in February, which is a cycle high, nearly double January’s pace of 25,000 jobs, and well above an upwardly revised gain of 38,000 jobs in December. Manufacturing hiring remains steady, with 14,000 new jobs in February, compared with upwardly revised gains of 12,000 jobs in January and 13,000 in December.
Temp hiring rebounds, but retail slips Temporary help—another important leading indicator of employment growth—gained 16,000 jobs in February, which was a strong rebound from a loss of 3,000 jobs in January, after adding 12,000 jobs in December and 27,000 in November. The slowdown in consumer spending during January and February resulted in retailers adding only 24,000 jobs in February, which was a softer pace than the downwardly revised 29,000 new jobs added in January.
ADP stronger than expected The ADP report, which is an important forward-looking proxy for private payroll growth, gained a surprisingly strong 198,000 jobs in February, with solid upside revisions in the prior three months. The ADP survey is now five months into a new methodology, and it’s averaging a solid 209,000 jobs per month over this period. ADP also reported a balanced distribution of new-job creation in February, with small firms adding 77,000 jobs, 65,000 jobs coming from mid-sized companies, and larger companies adding 57,000 workers.
Initial weekly jobless claims trending to five-year lows Initial weekly jobless claims—yet another important leading economic and employment indicator—fell to a six-week low of 340,000 for the week ended March 2, 2013, which is just above the five-year cycle low of 330,000 we saw in mid January. The smoother four-week moving average of 348,750 last week is already at a five-year low. This indicator—in conjunction with ADP, the household survey and temp hiring—suggests labor market strengthening.
Government labor heading lower The difference between private and nonfarm payroll gains in February was the loss of 10,000 federal, state and local government jobs, which marked the fifth consecutive month of government job losses, compared with losses of 21,000 in January, 5,000 in December and 9,000 in November. This trend is likely to continue indefinitely, in the wake of President Obama’s spending sequester, which went into effect on March 1, and mandates automatic across-the-board spending cuts of $85 billion over the next seven months in defense and non-defense discretionary areas.
Wage growth and hours worked both gain Average hourly earnings in February rose by 0.2%, which was twice January’s pace, while year-over-year wage gains remained steady at an increase of 2.1% in both February and January. In addition, the average private workweek for all employees ticked up to 34.5 hours in February. That’s significant, as an increase of 0.1 hour worked is the equivalent of adding an estimated 300,000 jobs to the economy.
Unemployment, participation and labor-impairment rates all fall The rate of unemployment (U3) fell to a five-year low of 7.7% in February from 7.9% in January, in part due in part to February’s robust labor data. The labor impairment rate (U6)—also known as the “total” rate of unemployment, because it more broadly includes discouraged workers and the underemployed—ticked down to 14.3% last month. But the labor force participation rate fell to a 33-year low of 63.5% in February, as 130,000 people became discouraged and stopped looking for work, essentially leaving the labor force, which is not the preferred option to reduce the unemployment rate.