Instant Analysis: February jobs data

Scott Anderson
Posted by Scott Anderson
Chief Economist
Key highlights:
  • Positive surprise from February payroll survey; +175K vs. consensus expectation +149K.
  • Hourly earnings jump 0.4% in February; year-on-year improves to 2.2%.
  • Net +25K job upward revision for December and January.
  • Unemployment rate increases to 6.7% from 6.6% as labor force rises
  • Services jobs bounce back: Ed & Health (+33K), Leisure & Hospitality (+25K).

crowd_commuteLarger than expected bounce in non-farm payroll gains in February, up +175K jobs versus consensus expectations for +149K. We were above consensus, expecting +160K jobs in February, but today’s release even beat our optimistic expectations. Combined with the net upward revision of +25K jobs for December and January, the net add to nonfarm payrolls was an even better +200K. Weather appeared to be less of a factor for February employment report release.

This is an all-around a solid employment report for the month of February that bodes well for better job and income growth in the months ahead.

Most encouraging was the larger-than-normal 0.4 percentage point increase in average hourly earnings, which improved the year-on-year gain in average hourly earnings to a healthier 2.2 percent. One has to go back all the way to October 2011 to see a monthly gain in average hourly earnings of that magnitude. Average hours worked did slip to 34.2 from 34.4 in February, which will somewhat temper income growth on the month; but the sharp gain in average hourly earnings is a positive signal that a lower unemployment rate could begin to boost wages and incomes for American households this year.

Another positive signal of labor market resilience comes from the solid gains in the labor force over the last two months. The labor force has increased by +787K over the last two months, perhaps indicating that improved job prospects are finally attracting people back into the labor force. The labor force participation rate held constant at 63.0 percent in February.

In another surprise, given the weakness in the ISM non-manufacturing employment index for February, services payrolls improved sharply in February compared to their performance over the last two months. Service employment increases really drove the overall payroll gains last month: Professional and business services added 79K, education and health 33K, leisure and hospitality 25K, and government 13K.

But job gains were more broad-based than that, goods producers also had modest payroll increases, notably construction added 15K, and manufacturing added 6K. There were a handful of sectors that lost net jobs in February, including retail (-4K), information (-16K), and the Federal government that lost (-6K) jobs on the month.

The combination on stronger labor force growth (+264K) and a modest gains in household employment (+42K) in February led to a slight uptick in the U.S. unemployment rate to 6.7% from 6.6%. If more discouraged workers re-enter the labor force sensing a turn in labor demand, the pace of unemployment rate declines could slow or even reverse for a time, so we will be monitoring this latest trend carefully.

A slight negative, the average duration of unemployment returned to 37.1 months in February from a low 35.4 months in January, and long-term unemployed increased by 203K to 3.8 million.

Bottom-line, this was a solid employment report that bodes well for job and income gains in the months ahead. The report fits in nicely with our stronger growth outlook for the second quarter and over the balance of the year. It also matches well with the FOMC’s expectations for the labor market and likely means another $10 billion dollar reduction in monthly asset purchases following the March 18-19th FOMC meeting.

Market reaction has been positive to this employment report: Stock futures were up about a half a percentage point and the 10-year Treasury yield increased above 2.8 percent for the first time since January 23.

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