Labor market sizzles despite February freeze
Leisure & hospitality led the comeback.
Shrugging off brutal winter weather last month, the labor market surged by a much stronger-than-expected gain of 379,000 jobs in February, with an upward revision of an additional 117,000 jobs in January. The rebound was led by the much-maligned leisure & hospitality industry, which added 355,000 jobs last month, driving the unemployment rate down to a 1-year low of 6.2%.
Mirror image In a lot of ways, February was the opposite of January. The third-wave spike in coronavirus infections peaked on Jan. 8 and has since fallen off a cliff. Covid vaccinations peaked at 1.4 million per day in mid-January, fell to a trough of 800,000 per day over the next several weeks due to the difficult winter weather, but then surged to a 2 million per day pace by month’s end.
Consequently, some mayors and governors have begun to loosen their social-distancing guidelines, re-opening bars, restaurants and retailers, which boosted hiring in leisure & hospitality and retail in February. At the same time, the money from Congress’ $900 billion Phase 4 fiscal stimulus package (which passed just before Christmas) has been flowing through the economy in earnest.
As the pace of vaccinations continues to build toward herd immunity over the summer, we believe that the powerful rebound in both the labor market and the broad economy should continue to accelerate.
Frigid February According to the Labor Department, 897,000 U.S. workers were unable to work due to bad weather in February. It will be long remembered for its crippling cold and snow across the entire country, but particularly in the Great Plains and the South. The historical average for the effect of poor weather in February is 309,000 people unable to work. So we lost nearly 600,000 more jobs due to severe weather conditions than normal last month. In addition, another 1.9 million who usually work full-time could only get part-time work because of the weather. As a result, February’s powerful labor-market rebound is all the more impressive against this brutal backdrop.
Strong nonfarm payroll rebound February’s gain of 379,000 jobs was nearly double the consensus forecast of an increase of 200,000 jobs (and our own more conservative weather-impaired forecast at Federated Hermes for a gain of 175,000 jobs). January’s preliminary increase of only 49,000 jobs was revised up by 117,000 workers to a gain of 166,000, while December was revised lower (by 79,000) from a loss of 227,000 positions to a larger final decline of 306,000 jobs.
Private payrolls strong Private payrolls also were much stronger than expected in February, surging by 465,000 jobs (lapping the consensus estimate for a gain of 200,000 workers). January’s preliminary gain of only 6,000 jobs was revised up sharply to an increase of 90,000 jobs, and December’s loss of 204,000 workers was revised down to a final loss of 274,000 jobs.
The difference between February’s nonfarm and private payrolls was a loss of 86,000 government jobs (versus a gain of 76,000 in January). State and local hiring shed 39,000 and 44,000 jobs, respectively, while federal hiring declined by a modest 3,000.
Senate has a lot to consider Federal Reserve Chair Powell is resolute about holding the fed funds rate to the zero-bound and continuing $120 billion in monthly bond purchases. But President Biden’s recent $1.9 trillion fiscal stimulus proposal has hit a speed bump in the Senate. Some moderates from both side of the aisle view the House-approved bill as unnecessarily large, not focused enough on the pandemic and not sufficiently targeted to helping those groups disproportionately harmed by the crisis. Given the recent strength in the economy—including this morning’s powerful jobs report—we expect a noticeably slimmer bill to pass in coming weeks.
Unemployment grinding lower The household survey rose by 208,000 jobs in February, up slightly from a gain of 201,000 in January. The civilian labor force expanded by 50,000 jobs in February, up from a loss of 406,000 jobs in January. The number of unemployed workers declined by 158,000 in February, compared with a decline of 606,000 people in January.
As a result, the unemployment rate (U-3) declined a tick to a 1-year low of 6.2% in February, sharply below its peak in April at 14.7% (the single worst month for the labor market since record-keeping began in 1939). Recently, the labor impairment rate (U-6, also known as the underemployment rate) has been in the spotlight in Washington because it is a better and broader barometer of the labor market that includes both part-time and discouraged workers. It held steady at 11.1% in February, down sharply from its record high of 22.8% in April. Finally, the labor force participation rate held steady at 61.4% in February, well above its trough of 60.2% in April, which was a 47-year low.
K-shaped recovery remains in place To be sure, there are still segments of the U.S. economy which need a helping hand until we get to herd immunity. For example, the unemployment rate for individuals with less than a high school diploma soared to 10.1% in February from 9.1% in January, while the unemployment rate for those with a bachelor’s degree or higher declined to 3.8% in February from 4% in January.
Wages steady, hours worked fall Hourly wages held steady at a 5.3% year-over-year (y/y) gain in February, while hours worked consolidated from a cycle high of 34.9 per week in January to 34.6 in February.
Internals strong Leisure & hospitality was the star last month, adding 355,000 jobs after losses of 25,000 in January and 498,000 in December, as several states began to re-open. Manufacturing hiring was stronger than expected in February, adding 21,000 jobs (consensus at 15,000), versus a loss of 14,000 jobs in January. The ISM manufacturing index hit a surprisingly strong 3-year high at 60.8 in February. Construction lost 61,000 jobs in February, compared with gains of 1,000 jobs in January and 47,000 jobs in December, but that loss was due exclusively to the bad weather. Retail hiring rose by 41,000 jobs in February (versus 46,000 jobs in January), on the heels of a strong Christmas, up 4.8% y/y, thanks to strong gift card redemptions in January. Temporary help, a good leading indicator of labor-market strength, added 53,000 jobs in February, after strong gains of 92,000 in January and 62,000 in December.
ADP and claims mixed ADP posted a much weaker-than-expected gain of 117,000 jobs in February, compared with an expected gain of 205,000 workers and January’s upwardly revised gain of 195,000 jobs. Initial weekly jobless claims (an important leading indicator for the labor market) have fallen 89% from their peak of 6.867 million on March 28 to 745,000 for the week ended on Feb. 27. Continuing claims, which are a better measure of the recovering health of the labor market, have fallen 83% from their peak at 24.9 million on May 9 to 4.3 million on Feb. 20.