Friday, March 5, 2010

February Employment Report: Once Again, Not Much New, But...

Despite the moderate decline in nonfarm payrolls by 36,000, the employment report for February should be viewed as broadly consistent with the premise that labor markets are turning the corner- albeit slowly.

Last month's drop in payrolls is mitigated by two factors: a) The severe snow storms that impacted part of the East Coast during the survey week were likely a factor adversely impacting the number to some degree- an acknowledgment also made by the BLS itself (although it refrained from attempting to quantify the extent of that adverse impact and also warned that the storms may have also caused an increase in employment in certain types of jobs like cleanup and repair services), and b) A net cumulative upward revision to the numbers for the December-January period by 36,000 casts the February decline in a somewhat less downbeat light in terms of recent trend.

The snow storms may have also played a role in causing a drop in both the average workweek (by 0.1 to 33.8 hours now) and overtime hours (by 0.2). The 64,000 decrease in construction jobs, although one would be tempted to see the hand of the storms again here given the nature of the industry) is mostly in line with the employment trend in that sector in the last six months.

Source: Bureau of Labor Statistics

An encouraging element in the establishment survey was the (admittedly tiny) gain in manufacturing jobs (+1,000) following a healthy 20,000 increase in January, suggesting that the sector is plowing ahead, consistent with the solid readings of the various manufacturing indicators in the last few months. Also, the absence of a payback in the retail trade jobs category from its robust 42,000 gain in January (they were flat in February) does reflect an improving sense of confidence among retailers that consumer spending is making a sustainable comeback.

Signs of persistent cautiousness in terms of hiring plans were also evident in the establishment survey, as temporary jobs rose by another 48,000, bringing the total number of such jobs created since last September to 284,000, and reflecting a lingering hesitation by employers to add regular full-time jobs.

The actual distortion to the data from the ongoing hiring of census workers was much smaller than anticipated, as that number was only 15,000 in February. Census-related hiring still has the potential to disrupt some monthly payroll numbers in the period ahead- hence, a quick comparison of the total nonfarm payroll numbers with the private sector ones remains useful in the coming months' reports.

The absence of a partial rebound in the unemployment rate in February from its sharp 0.3% drop to 9.7% in January is the result of proportionate increases in the size of the civilian labor force (+342,000) and household employment for the month (+308,000). The steady unemployment rate raises the level of confidence in the prospect that the series may have already seen its high for the cycle at the 10% level reached in December.

All in all, the data offered little new insights into the underlying dynamic of labor markets but they leave the prospect of moderate job growth (to the tune of 50,000 to 75,000 a month) in the second quarter, intact. The turnaround of labor markets, following the devastation caused by the sheer size of losses suffered since the onset of the recession (8.4 million), is a circuitous and cautious process but there should be little doubt that it is already taking hold.

Anthony Karydakis