U.S. Job Market Stumbles in February, Undercutting Forecasts

By David Reaves, Senior Economist, Dodge Data & Analytics

BEDFORD, MA - March 15, 2019 - According to the most recent report from the U.S. Bureau of Labor Statistics (BLS), non-farm payrolls added a lethargic 20,000 jobs in February, falling far below the consensus prediction. This latest release stands as a startling contrast to the robust 304,000 new jobs reported in the first month of the year. January’s remarkable growth was further revised upward to 311,000 (+7,000), as was December’s employment count (+5000). While February’s release marks the smallest monthly gain since September of 2017, which was heavily impacted by major hurricanes, the three-month average for job growth remains at a healthy 186,000. Obviously, such volatility brings a certain level of fear and trepidation to the forefront, but the overall health of the U.S. economy remains largely intact. Nevertheless, economists generally agree that 2019 will see slower growth both for jobs and the overall economy than in the prior year.

A combination of forces was at play in reducing February job growth. First off, after jaw-dropping January numbers a pullback in February was anticipated. While the size of the adjustment was underestimated, the movement was expected. Unseasonably warm weather played a role in boosting January’s employment numbers, while contrasting heavy snowfall in February played a role in the month’s low employment figure.  The magnitude of the drop from January may speak to the fact that the economy is decelerating as the last year’s government stimulus fades and historically low unemployment rates continue to cause difficulty in filling open positions.

There were several positive takeaways from the report. First, the unemployment rate fell to 3.8% from 4.0% the month before. January’s unemployment rate was a result of the large number of government workers temporarily displaced during the government shutdown. As those workers returned to their jobs, February’s rate responded accordingly.

The tight labor market has led to pay increases as employers are forced to compete with one another. In February, average hourly earnings for all employees on private nonfarm payrolls rose by 11 cents to $27.66, following a 2-cent gain in January. Over the year, average hourly earnings have increased 3.4%.

Despite the steep drop off in employment gains, there was some strength evident across individual sectors. The professional/business services (+42,000), healthcare (+16,000), and wholesale trade (+11,000) sectors led the month’s meager job gains.  On the other hand, manufacturing employment gains were only up 4,000 after increasing by an average of 22,000 per month in 2018. Continued weakening of the global economy and trade disputes with China likely played a role in this slowing.

The dark horse of this latest employment release was certainly the construction industry.  After adding a whopping 53,000 jobs in January, the industry saw a 31,000 drop-off in February.  A huge portion of this can be directly attributed to poor weather conditions. Most construction job losses came from the heavy & civil engineering category (-13,200). Heavy & civil engineering includes road building, which would clearly be derailed by inclement weather.  While the weather and adjustment from a strong January are leading causes in the construction decline, the U.S. and global economies do show signs of slowing. Weaker housing starts, permits, and sales also contributed to the general uncertainty and possible slowing economic growth as we move through 2019.

 

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