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First Cut: February payrolls surprise to the upside, unemployment remains near 50-year lows

The February Employment Situation surprised to the upside with hefty gains in payrolls in the Establishment Survey and evidence of a persistently robust labor market in the Household Survey. The Federal Reserve may say the labor market is strong, but with businesses complaining of a lack of qualified applicants for open jobs, and rising compensation costs, it is hard not to call it tight.

Non-farm payrolls were up 273,000 in February after up 273,000 in January (previously 147,000) and 184,000 in December (previously 261,000). Even without the net upward revision of 49,000 to the two prior months, the February data looked robust. Private payrolls were up 228,000 in February and government jobs were up 45,000 in part as hiring for the 2020 Census kicked in for a second month in a row.

Private payrolls had a solid gain for goods-producers at up 61,000 which was due to continued hiring in construction (61,000) while the housing market is hot and a nice rebound in manufacturing (up 15,000) as the sector saw new orders on the rise. Mining managed to eke out an increase of 4,000. Gains among service-providers were uneven, but there were big gains for financial activities (up 26,000), professional and business services (up 41,000), healthcare and social assistance (up 56,500), and leisure and hospitality (up 51,000).

Weather-sensitive sectors accounted for about 25% of the increase, suggesting that special factors like the relatively mild conditions this winter are not the main driver of payroll gains.

Average hourly earnings were up 0.3% month-over-month in February, while the year-over-year pace slipped a bit to up 3.0%. Both are consistent with upward movement in earnings if with some moderation in the underlying trend. The average workweek was up a tenth to 34.4.

The unemployment rate dipped one-tenth to 3.5% (3.517% unrounded) in February while the U6 rate was up a tenth to 7.0%. Both of these rates point to ongoing lack of slack in the labor force. The labor force was down in February with the number of employed up 45,000 while the unemployed were down 105,000. New entrants into the workforce were down 52,000. Job losers were somewhat higher at up 58,000 and job leavers down 59,000. The participation rate held at 63.4%, a post-recession high. Beyond normal month-to-month changes, these numbers are consistent with unusually favorable conditions for new entrants to the workforce and absorbing workers who are on the margins of the labor market.

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