A look back at the March 4 week starts with the Friday headline for February nonfarm payrolls which rose a meager 20,000 against expectations of something in the 170,000-180,000 range. The immediate shock of such a soft number was cushioned by a deeper look that suggested the underlying data were not at all bad. The payroll data was skewed by a number of special factors. On the other hand, average hourly earnings continued to rise and hit a 3.4% year-over-year increase for February, the highest since 3.4% in April 2009. The unemployment rate dipped two-tenths to 3.8% and the U-6 rate was eight-tenths lower at 7.3%, its lowest in eighteen years. The participation rate held at 63.2% and indicated that marginalized workers returning to jobs have had an impact.
There was nothing in the other labor market reports for the week that would hint at a sudden and steep deterioration in the labor market.
The ADP National Employment Report for February said private payrolls were up 183,000. While it was a big miss from the 25,000 jobs reported in the Bureau of Labor Statistics report, it may be a more accurate representation of conditions at present.
Initial jobless claims are past the noise generated by the partial federal government shutdown and some adverse weather events. The mild slip in the March 2 week of 3,000 to 223,000 point to less volatility and level likely to be sustained somewhere around the 220,000-mark. The insured rate of unemployment in the February 23 week edged down one-tenth to 1.2%, quite low and consistent with a tight labor market.
The Challenger numbers on layoff intentions did spike higher to 76,835 in February after 52,988 in January, but about 50,000 of that was related to layoffs in the military – typical when there is a drawdown when a conflict is closed. It is also worth noting that all these cuts will not occur at once Otherwise, there is a running story of contraction in the retail sector to which Payless Shoe stores have added another 16,000 jobs cut. In any case, healthy retailers and wholesalers are likely to absorb those laid off, and workers in the industrial sector should find plenty of openings elsewhere.
The employment component in the ISM Non-Manufacturing Index report for February was the only one of the components to decline. The reading of 55.2 after 57.8 in January seems to be part of deceleration in hiring, but not a significant deterioration. Hiring is still moderate. The components for business activity and new orders both rebounded nicely after the slowdown in January that was clearly related to the government shutdown. The overall index moved up to 59.7 in February, its highest since November 2018.
December data on sales of new single-family homes and January housing starts and permits-issued both showed the influence of declines in mortgage interest rates that could incentivize buyers to return to the housing market. Freddie Mac 30-year fixed rates for mortgages had a near-term peak of 4.87% in November that has since unwound the upward momentum for rates over previous months in 2018. The rate declined to 4.64% in December, 4.46% in January, and was down to 4.37% in February. Sales of new single-family homes rose a respectable 3.7% in December to 621,000 to its highest since 653,000 in May 2018. After a decline in December, housing starts were up 18.6% in January to 1.230 million units (SAAR), the highest since 1.237 million in September 2018. The level of permits issued was up 1.4% to 1.345 million units, its highest since 1.364 in April 2018. There is hope that the spring homebuying season will not disappoint in 2019.
The Fed’s Beige Book pointed to broadly similar conditions for the period between early January and late February as the prior report that covered late November until January. Of the 12 Districts, ten reported slight-to-moderate growth while two said growth had paused. This was the same as in the prior report in terms of count, but the language was more nuanced to slower activity than previously. Again, it may reflect impacts from the partial government shutdown, but it also strongly suggests that the underlying pace of growth has softened somewhat. This should not be read as a fundamental deterioration in conditions. Rather that domestic growth — while still chugging along — has per force been affected by more sluggish global economic conditions and the fading of fiscal stimulus.
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