Job Creation Stumbles in February
The US adds a fewer-than-expected 20,000 jobs; but unemployment falls to 3.8 percent
February’s employment report is sure to have many economists and business leaders scratching their heads. After adding a far-better-than-expected 311,000 jobs in January, the US labor market added a paltry 20,000 jobs in February – the lowest job creation since September 2017. This big drawdown in hiring is surprising in its magnitude and raises several questions. Is this just a blip in the data? Or is it symptomatic of growing economic sluggishness? While job creation was well below expectations, there were some signs of strength. The unemployment rate declined from 4.0 percent to 3.8 percent, and the underemployment rate fell strongly from 8.1 percent to 7.3 percent. Additionally, annual wage growth – which has averaged around 2.5 percent over the last decade – rose from 3.2 percent to 3.4 percent.
Top Takeaways from the Report
A confusing story for job creation
Job creation has been all over the place in the last three months. After adding a revised 227,000 jobs in December and 311,000 jobs in January, the US only added 20,000 jobs in February. This immediate and sharp decline warrants some hesitation when considering the data, especially since initial consensus forecasts by economists have been off by over 100,000 jobs, both to the upside and downside, in the last three reports. While the Bureau of Labor Statistics doesn’t note any distortions in February’s report due to the government shutdown, it could very well be the case that there is something odd going on, so look out for revisions in next month’s report.
While job creation faltered in February, hiring over the last three months has averaged 186,000 jobs, which is still quite strong. With February’s gain, the U.S. economy has now added jobs for 101 consecutive months.
Wage growth appears to have momentum
After confounding Fed officials for much of 2017 and 2018, annual wage growth appears to have found some momentum. Annual wage growth registered at 3.4 percent in February and has been above 3.0 percent for the past five months; this comes after averaging around 2.5 percent for much of the last decade. Fed officials have long been calling for wage growth to pick up - due to employers competing over a smaller pool of qualified labor - but it just hadn’t happened, until now. This is a good sign for workers, especially with inflationary pressures remaining below the Fed’s 2 percent target.
It’s possible that February’s lackluster job growth is the first major sign of a weakening labor market
The labor market has been the shining star of the US economy over the past several years and one of the main reasons why the Federal Reserve felt comfortable raising rates four times in 2018. However, there have been growing fears that the effects of a slowing global economy could spill over into the United States. Already several indicators are pointing to a weaker US economy, and this report may be a signal that the labor market is starting to soften as well. It’s still too early to tell, but it’s worth watching.
Growth by Select Industry
- Professional and business services added the largest number of jobs in February at 42,000. The sector has added 537,000 jobs over the past year.
- The manufacturing sector added 4,000 jobs in February, the lowest number since July 2017. Despite the slowdown in hiring, the sector has added jobs for 19 consecutive months.
- After booming in January, the construction sector lost 31,000 jobs in February. This is the first month since May 2016 that the sector has experienced jobs losses.
The Bottom Line
Job creation fell well below expectations in February, though there were some signs of strength with underemployment declining sharply and annual wage growth hitting 3.4 percent. With the conflicting results, February’s employment report has painted a confusing picture that is sure to drive debate. Was this report just a fluke? Or is it another indicator of a slowing economy?
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