Job market solid ahead of coronavirus impact
The February nonfarm payroll report released today is the last clean pre-coronavirus look at the labor market. While the virus may very well start to impact the data in the next report, February’s shows the U.S. economy is dealing with the outbreak from a position of strength.
The employment numbers, quite frankly, could not have been much better. The month-over-month gain of 273,000 easily beat the consensus expectation of a gain of 175,000 and Federated Hermes’ above-consensus expectation of 209,000. Just as significant, the prior two months were revised higher by a combined 85,000 jobs. This pushes the 3-month average to 243,000 jobs, the highest level since September 2016. As a result, the unemployment rate is back down to a half-century cycle low of 3.5%.
Below the headline, the internals are just as strong. Manufacturing jobs, which had declined in three out of the prior four months, showed a gain of 15,000 jobs vs. expectations for a decline of 3,000. Wages grew 3%, while average weekly hours were up a tick to 34.4. This represents a 4.7% year-over-year increase in the national paycheck (average wages multiplied by hours worked and employees). The household survey rebounded to a gain of 45,000 jobs in February from January’s loss of 89,000. The participation rate held at a 7-year high at 63.4%.
While some market watchers may dismiss the strong jobs report as being stale data from before the onset of the coronavirus, we take a more nuanced view. Certain sectors, such as leisure and hospitality (up 51,000 jobs in February), will get pounded, and there likely will be a pullback in March’s headline number. But, weekly unemployment claims remain near the lows. Additionally, while the coronavirus certainly has the potential to have a meaningful impact on economic activity in the short-run, it is encouraging that the labor market enters this period with such strength. The consumer, which represents approximately 70% of the economy, will face the coronavirus with unemployment at a 50-year low, wage growth having consistently exceeded 3% for the first time in more than a decade, record-low borrowing rates, and gas prices under $2.50 per gallon.